TIDMHSBA
RNS Number : 0931S
HSBC Holdings PLC
06 March 2019
Notes on the financial statements
Hedges of net investments in foreign operations
The Group applies hedge accounting in respect of certain
consolidated net investments. Hedging is undertaken using forward
foreign exchange contracts or by financing with foreign currency
borrowings. At 31 December 2018, the fair values of outstanding
financial instruments designated as hedges of net investments in
foreign operations were assets of $163m (2017: $4m), liabilities of
nil (2017: $71m) and notional contract values of $5,000m (2017:
$5,000m). Ineffectiveness recognised in 'Net income from financial
instruments held for trading or managed on a fair value basis' in
the year ended 31 December 2018 was nil (2017: nil).
16 Financial investments
Carrying amount of financial investments
Financial investments measured at fair value through other 344,767 N/A
comprehensive income
- treasury and other eligible bills 96,642 N/A N/A
246,371 N/A N/A
1,657 97
- debt securities
- equity securities
- other instruments 1
Debt instruments measured at amortised cost 2 62,666 N/A
- treasury and other eligible bills 679 N/A N/A
61,987
- debt securities
Available-for-sale securities at fair value N/A 336,157
N/A N/A
- treasury and other eligible bills N/A 78,851
253,389
3,917
- debt securities
- equity securities
Held to maturity securities at amortised cost N/A 52,919
- debt securities 2 N/A 52,919
At 31 Dec 3, 4 407,433 389,076
1 'Other instruments' comprises of loans and advances.
2 Fair value $62.1bn (2017: $54.1bn).
3 Categories of financial instruments are disclosed under IFRS 9
at 31 December 2018. These are not directly comparable with 31
December 2017, where the instruments were categorised in accordance
with IAS 39.
4 Information regarding the effects of adoption of IFRS 9 can be found in Note 37.
Equity instruments measured at fair value through other
comprehensive income
Financial investments at amortised cost and fair value
1 Included within 'fair value' figures are debt securities
issued by banks and other financial institutions of $56bn (2017:
$67bn), of which $8bn (2017: $15bn) are guaranteed by various
governments.
2 Includes securities that are supported by an explicit
guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Government
agencies and sponsored entities.
263 HSBC Holdings plc Annual Report and Accounts 2018
Notes on the financial statements
Financial assets pledged as collateral which the counterparty
has the right to sell or repledge
The fair value of assets accepted as collateral, relating
primarily to standard securities lending, reverse repurchase
agreements, swaps of securities and derivative margining, that HSBC
is permitted to sell or repledge in the absence of default was
$482,818m (2017: $387,678m). The fair value of any such collateral
sold or repledged was $350,848m (2017: $243,531m).
HSBC is obliged to return equivalent securities. These
transactions are conducted under terms that are usual and customary
to standard securities lending, reverse repurchase agreements and
derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and equity securities lent under securities
lending agreements, as well as swaps of equity and debt securities.
For secured borrowings, the transferred asset collateral continues
to be recognised in full and a related liability, reflecting the
Group's obligation to repurchase the assets for a fixed price at a
future date, is also recognised on the balance sheet. Where
securities are swapped, the transferred asset continues to be
recognised in full. There is no associated liability as the
non-cash collateral received is not recognised on the balance
sheet. The Group is unable to use, sell or pledge the transferred
assets for the duration of the transaction, and remains exposed to
interest rate risk and credit risk on these pledged assets. With
the exception of 'Other sales' in the table below, the
counterparty's recourse is not limited to the transferred
assets.
Transferred financial assets not qualifying for full
derecognition and associated financial liabilities
Repurchase agreements 55,510 52,093
Securities lending agreements 33,878 3,324
Other sales (recourse to transferred assets only) 2,387 2,388
2,377 2,378 (1)
18 Interests in associates and joint ventures
Associates
At 31 December 2018, the carrying amount of HSBC's interests in
associates was $22,244m (2017: $22,577m).
Principal associates of HSBC
Bank of Communications Co., Limited
The Saudi British Bank
2018
Carrying Fair
amount value(1)
$m $m
17,754 10,991
3,557 5,222
$m $m
18,057 10,491
3,618 4,320
1 Principal associates are listed on recognised stock exchanges.
The fair values are based on the quoted market prices of the shares
held (Level 1 in the fair value hierarchy).
At 31 Dec 2018
Country of HSBC's
incorporation interest
and principal Principal %
Footnotes place of business activity
People's Republic
Bank of Communications Co., of
Limited China Banking services 19.03
The Saudi British Bank 1 Saudi Arabia Banking services 40.00
1 In 2018, The Saudi British Bank announced a merger agreement
with Alawwal Bank in Saudi Arabia. The merger, subject to
shareholder and regulatory approval, is expected to be
completed
in 2019 and would dilute HSBC's shareholding in the merged bank
from 40% to 29.2%.
265 HSBC Holdings plc Annual Report and Accounts 2018
A list of all associates and joint ventures is set out on page
302.
Bank of Communications Co., Limited ('BoCom')
The Group's investment in BoCom is classified as an associate.
Significant influence in BoCom was established via representation
on BoCom's Board of Directors and participation in a technical
cooperation and exchange programme ('TCEP'). Under the TCEP, a
number of HSBC staff have been seconded to assist in the
maintenance of BoCom's financial and operating policies.
Investments in associates are recognised using the equity method of
accounting in accordance with IAS 28, whereby the investment is
initially recognised at cost and adjusted thereafter for the
post-acquisition change in the Group's share of BoCom's net assets.
An impairment test is required if there is any indication of
impairment.
Impairment testing
At 31 December 2018, the fair value of HSBC's investment in
BoCom had been below the carrying amount for approximately 80
months. As a result, the Group performed an impairment test on the
carrying amount of the investment in BoCom, which confirmed there
was no impairment at 31 December 2018 as the recoverable amount as
determined by a value-in-use ('VIU') calculation was higher than
the carrying value.
At 31 Dec At 31 Dec
2018 2017
Fair Fair
VIU Carrying value VIU Carrying value
value value
$bn $bn $bn $bn $bn $bn
Bank of Communications Co., Limited
18.0 17.8 11.0
18.3 18.1 10.5
In future periods, the VIU may increase or decrease depending on
the effect of changes to model inputs. The main model inputs are
described below and are based on factors observed at the
period-end. The factors that could result in a change in the VIU
and an impairment include a short-term underperformance by BoCom, a
change in regulatory capital requirements, or an increase in
uncertainty regarding the future performance of BoCom resulting in
a downgrade of the future asset growth or profitability. An
increase in the discount rate as a result of an increase in the
risk premium or risk-free rates could also result in a reduction of
VIU and an impairment. At the point where the carrying value
exceeds the VIU, impairment would be recognised.
If the Group did not have significant influence in BoCom, the
investment would be carried at fair value rather than the current
carrying value. Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of BoCom, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections
based on management's estimates of future earnings available to
ordinary shareholders prepared in accordance with IAS 36.
Significant management judgement is required in arriving at the
best estimate. There are two main components to the VIU
calculation. The first component is management's best estimate of
BoCom's earnings which is based on management's explicit forecasts
over the short to medium term. This results in forecast earnings
growth that is lower than recent historical actual growth and also
reflects the uncertainty arising from the current economic outlook.
Earnings beyond the short to medium term are then extrapolated in
perpetuity using a long-term growth rate to derive a terminal
value, which comprises the majority of the VIU. The second
component is the capital maintenance charge ('CMC') which is
management's forecast of the earnings that need to be withheld in
order for BoCom to meet regulatory capital requirements over the
forecast period (i.e. CMC is deducted when arriving at management's
estimate of future earnings available to ordinary shareholders).
The principal inputs to the CMC calculation include estimates of
asset growth, the ratio of risk-weighted assets to total assets,
and the expected minimum regulatory capital requirements. An
increase in the CMC as a result of a change to these principal
inputs would reduce VIU. Additionally, management considers other
factors (including qualitative factors) to ensure that the inputs
to the VIU calculation remain appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in
accordance with the requirements of IAS 36:
-- Long-term profit growth rate: 3% (2017: 3%) for periods after
2022, which does not exceed forecast GDP growth in mainland China
and is consistent with forecasts by external analysts.
-- Long-term asset growth rate: 3% (2017: 3%) for periods after
2022, which is the rate that assets are expected to grow to achieve
long-term profit growth of 3%.
-- Discount rate: 11.82% (2017: 11.85%), which is based on a
capital asset pricing model ('CAPM') calculation for BoCom, using
market data. Management also compares rates derived from the CAPM
with discount rates from external sources. The discount rate used
was within the range of 10.4% to 15.0% (2017: 10.2% to 13.4%)
indicated by external sources.
-- Loan impairment charge as a percentage of customer advances:
an increased range from 0.73% to 0.79% (2017: 0.66% to 0.82%) in
the short to medium term reflect US-China trade tensions. For
periods after 2022, the ratio is 0.70% (2017: 0.70%), which is
slightly higher than the historical average.
-- Risk-weighted assets as a percentage of total assets: 62%
(2017: 62%) for all forecast periods. This is slightly higher than
BoCom's actual results and slightly lower than the forecasts
disclosed by external analysts.
-- Cost-income ratio: ranges from 38.7% to 39.0% (2017: 37.1% to
38.0%) in the short to medium term. This is consistent with the
forecasts disclosed by external analysts.
-- Effective tax rate: ranges from 13.8% to 22.3% (2017: 18.2%
to 22.5%) in the short to medium term, reflecting an expected
increase towards the long-term assumption. For periods after 2022,
the rate is 22.5% (2017: 22.5%), which is slightly higher than the
historical average.
-- Regulatory capital requirements: capital adequacy ratio of
11.5% (2017:11.5%) and tier 1 capital adequacy ratio of 9.5% (2017:
9.5%), based on the minimum regulatory requirements.
HSBC Holdings plc Annual Report and Accounts 2018 266
Notes on the financial statements
The following table shows the change to each key assumption in
the VIU calculation that on its own would reduce the headroom to
nil.
Key assumption Changes to key assumption to reduce headroom to
nil
-- Long-term profit growth rate -- decreases by 13 basis
points
-- Long-term asset growth rate -- increases by 12 basis
points
-- Discount rate -- increases by 16 basis points
-- Loan impairment charge as a percentage of customer advances
-- increases by 2 basis points
-- Risk-weighted assets as a percentage of total assets
-- increases by 77 basis points
-- Cost-income ratio -- increases by 50 basis points
-- Long-term effective tax rate -- increases by 123 basis
points
-- Regulatory capital requirements - capital adequacy ratio
-- increases by 14 basis points
-- Regulatory capital requirements - tier 1 capital adequacy ratio
-- increases by 75 basis points
The following table further illustrates the impact on VIU of
reasonably possible changes to key assumptions. This reflects the
sensitivity of the VIU to each key assumption on its own and it is
possible that more than one favourable and/or unfavourable change
will occur at the same time. The selected rates of reasonably
possible changes to key assumptions are largely based on external
analysts' forecasts, which can change from period to period.
Sensitivity of VIU to reasonably possible changes in key
assumptions
Favourable change Unfavourable change
Increase Decrease
in VIU VIU in VIU VIU
bps $bn $bn bps $bn $bn
At 31 Dec 2018
Loan impairment charge as a percentage of customer advances
Risk-weighted assets as a percentage of total assets
Cost-income ratio
Long term effective tax rate
Earnings in short to medium term - compound annual growth
rate(1)
Regulatory capital requirements - capital adequacy ratio
Regulatory capital requirements - tier 1 capital adequacy
ratio
At 31 Dec 2017
Considering the interrelationship of the changes set out in the
table above, management estimates that the reasonably possible
range of VIU is $15.5bn to $19.6bn (2017: $14.7bn to $21.1bn). In
2018, the range is based on the favourable/unfavourable change in
the earnings in the short to medium-term and long-term LICs set out
in the table above. All other long-term assumptions, the discount
rate and the basis of the CMC have been kept unchanged when
determining the reasonably possible range of the VIU.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December.
For the year ended 31 December 2018, HSBC included the associate's
results on the basis of the financial statements for the 12 months
ended 30 September 2018, taking into account changes in the
subsequent period from 1 October 2018 to 31 December 2018 that
would have materially affected the results.
267 HSBC Holdings plc Annual Report and Accounts 2018
Selected balance sheet information of BoCom
At 30 Sep
1 Due to the adoption of IFRS9, the opening equity of BoCom at 1
January 2018 was reduced by $4,053m.
Reconciliation of BoCom's total shareholders' equity to the
carrying amount in HSBC's consolidated financial statements
At 30 Sep
Selected income statement information of BoCom
For the 12 months ended 30 Sep
HSBC Holdings plc Annual Report and Accounts 2018 268
Subsidiaries with significant non-controlling interests
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by
non-controlling interests
Place of business
Profit attributable to non-controlling interests
Accumulated non-controlling interests of the subsidiary
Dividends paid to non-controlling interests
Summarised financial information:
- total assets
- total liabilities
- net operating income before changes in expected credit losses
and other credit impairment charges
- profit for the year
- total comprehensive income for the year
20 Structured entities
HSBC is mainly involved with both consolidated and
unconsolidated structured entities through the securitisation of
financial assets, conduits and investment funds, established either
by HSBC or a third party.
Consolidated structured entities
Total assets of HSBC's consolidated structured entities, split
by entity type
HSBC Other Total
Conduits Securitisations managed funds $bn $bn
$bn $bn $bn
At 31 Dec 2018 9.2 5.7 6.5 4.4 25.8
At 31 Dec 2017 12.9 4.8 7.0 3.2 27.9
Conduits
HSBC has established and manages two types of conduits:
securities investment conduits ('SICs') and multi-seller
conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored
investment opportunities.
-- At 31 December 2018, Solitaire, HSBC's principal SIC, held
$2.3bn of ABSs (2017: $3.2bn). These are included within the
disclosures of ABSs on page 122. It is currently funded entirely by
commercial paper ('CP') issued to HSBC. Although HSBC continues to
provide a liquidity facility, Solitaire has no need to draw on it
as long as HSBC purchases its issued CP, which HSBC intends to do
for the foreseeable future. At 31 December 2018, HSBC held $3.4bn
of CP (2017: $4.6bn).
-- Mazarin is funded by medium-term notes, and is no longer
funded by repurchase agreements. HSBC's primary exposure to Mazarin
is represented by the amortised cost of the debt required to
support the non-cash assets of the vehicles. At 31 December 2018,
this amounted to $0.5bn (2017: $0.9bn). The first loss protection
is provided through the capital notes issued by the vehicle, which
are held substantially by third parties.
-- Barion and Malachite's clean-up redemption conditions were
triggered in March 2018 and August 2018 respectively, resulting in
the full redemption of these vehicles.
Multi-seller conduit
HSBC's multi-seller conduit was established to provide access to
flexible market-based sources of finance for its clients.
Currently, HSBC bears risk equal to the transaction-specific
facility offered to the multi-seller conduit, amounting to $16.1bn
at 31 December 2018 (2017: $15.7bn). First loss protection is
provided by the originator of the assets, and not by HSBC, through
transaction-specific credit enhancements. A layer of secondary loss
protection is provided by HSBC in the form of programme-wide
enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and
advances it originates in order to diversify its sources of funding
for asset origination and capital efficiency purposes. The loans
and advances are transferred by HSBC to the structured entities for
cash or synthetically through credit default swaps, and the
structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money
market funds. Where it is deemed to be acting as principal rather
than agent in its role as investment manager, HSBC controls these
funds.
HSBC Holdings plc Annual Report and Accounts 2018 270
Notes on the financial statements
Other
HSBC has entered into a number of transactions in the normal
course of business, which include asset and structured finance
transactions where it has control of the structured entity. In
addition, HSBC is deemed to control a number of third-party managed
funds through its involvement as a principal in the funds.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by HSBC. The Group enters into
transactions with unconsolidated structured entities in the normal
course of business to facilitate customer transactions and for
specific investment opportunities.
Nature and risks associated with HSBC interests in
unconsolidated structured entities
Total assets in relation to HSBC's interests in the unconsolidated structured
entities 3.8 8.3 8.9 4.7 25.7
- trading assets - 0.1 0.3 1.3 1.7
- 7.3 7.9 - 15.2
3.8 - 0.3 2.7 6.8
- 0.9 0.4 0.3 1.6
- - - 0.4 0.4
- financial assets designated
and otherwise mandatorily measured
at fair value
- loans and advances to customers
- financial investments
- other assets
Total liabilities in relation to HSBC's interests in the unconsolidated
structured
entities - - - 0.2 0.2
- other liabilities - - - 0.2 0.2
Other off-balance sheet commitments 0.8 0.1 3.3 1.0 5.2
HSBC's maximum exposure at 31 Dec
2018 4.6 8.4 12.2 5.5 30.7
Total asset values of the entities
($m)
0-500 78 321 930 210 1,539
500-2,000 6 56 578 3 643
2,000-5,000 - 17 235 - 252
5,000-25,000 2 10 104 1 117
25,000+ - 2 11 - 13
Number of entities at 31 Dec 2017 86 406 1,858 214 2,564
$bn $bn $bn $bn $bn
Total assets in relation to HSBC's
interests in the unconsolidated structured
entities 4.0 9.1 9.3 4.1 26.5
- trading assets - 0.2 0.2 2.4 2.8
- financial assets designated at
fair value - 8.0 8.3 - 16.3
- loans and advances to banks - - - 0.1 0.1
- loans and advances to customers 4.0 - - 1.1 5.1
- financial investments - 0.9 0.8 0.1 1.8
- other assets - - - 0.4 0.4
Total liabilities in relation to
HSBC's interests in the unconsolidated
structured entities - - - 0.3 0.3
- other liabilities - - - 0.3 0.3
Other off-balance sheet commitments - 0.1 2.2 0.3 2.6
HSBC's maximum exposure at 31 Dec
2017 4.0 9.2 11.5 4.4 29.1
The maximum exposure to loss from HSBC's interests in
unconsolidated structured entities represents the maximum loss it
could incur as a result of its involvement with these entities
regardless of the probability of the loss being incurred.
-- For commitments, guarantees and written credit default swaps,
the maximum exposure to loss is the notional amount of potential
future losses.
-- For retained and purchased investments in and loans to
unconsolidated structured entities, the maximum exposure to loss is
the carrying value of these interests at the balance sheet
reporting date.
The maximum exposure to loss is stated gross of the effects of
hedging and collateral arrangements that HSBC has entered into in
order to mitigate the Group's exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles
through holding notes issued by these entities. In addition, HSBC
has investments in ABSs issued by third-party structured entities,
as set out on page 121.
HSBC managed funds
HSBC establishes and manages money market funds and non-money
market investment funds to provide customers with investment
opportunities. Further information on funds under management is
provided on page 65.
271 HSBC Holdings plc Annual Report and Accounts 2018
Impairment testing
The Group's impairment test in respect of goodwill allocated to
each cash-generating unit ('CGU') is performed as at 1 July each
year. A review for indicators of impairment is undertaken at each
subsequent quarter-end and as at 31 December 2018. No indicators of
impairment were identified as part of these reviews.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been
allocated was equal to its value in use ('VIU') at each respective
testing date for 2017 and 2018. For each CGU, the VIU is calculated
by discounting management's cash flow projections for the CGU. The
key assumptions used in the VIU calculation for each significant
CGU are discussed below.
Key assumptions in VIU calculation
Notes on the financial statements
At 1 July 2018, aggregate goodwill of $3,061m (1 July 2017:
$3,059m) had been allocated to CGUs that were not considered
individually significant. The Group's CGUs do not carry on their
balance sheets any significant intangible assets with indefinite
useful lives, other than goodwill.
Management's judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on plans
approved by the GMB. For the goodwill impairment test conducted at
1 July 2018, management's cash flow projections until the end of
2022 were used.
Discount rate
The rate used to discount the cash flows is based on the cost of
capital assigned to each CGU, which is derived using a capital
asset pricing model ('CAPM'). CAPM depends on a number of inputs
reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each CGU are refined to reflect the rates of
inflation for the countries within which the CGU operate. In
addition, for the purposes of testing goodwill for impairment,
management supplements this process by comparing the discount rates
derived using the internally generated CAPM, with the cost of
capital rates produced by external sources for businesses operating
in similar markets.
Nominal long-term growth rate
The long-term growth rate is used to extrapolate the cash flows
in perpetuity because of the long-term perspective within the Group
of business units making up the CGUs. These growth rates reflect
GDP and inflation for the countries within which the CGU operates
or from which it derives revenue.
Sensitivities of key assumptions in calculating VIU
At 1 July 2018, none of the CGUs were sensitive to reasonably
possible adverse changes in key assumptions supporting the
recoverable amount. In making an estimate of reasonably possible
changes to assumptions, management considers the available evidence
in respect of each input to the model, such as the external range
of discount rates observable, historical performance against
forecast and risks attaching to the key assumptions underlying cash
flow projections.
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term
('PVIF') insurance business, expected cash flows are projected
after adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management's
judgement of future trends, and uncertainty in the underlying
assumptions is reflected by applying margins (as opposed to a cost
of capital methodology). Variations in actual experience and
changes to assumptions can contribute to volatility in the results
of the insurance business.
Actuarial Control Committees of each key insurance entity meet
on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are
not observable and model methodologies must be approved by the
Actuarial Control Committee.
Movements in PVIF
Change in PVIF of long-term insurance business
- value of new business written during the year
- expected return 1
- assumption changes and experience variances (see below)
- other adjustments
1 'Expected return' represents the unwinding of the discount
rate and reversal of expected cash flows for the period.
Assumption changes and experience variances
Included within this line item are:
-- $(56)m (2017: $(98)m), directly offsetting regulatory-driven
changes to the valuation of liabilities under insurance
contracts.
-- $455m (2017: $(141)m), reflecting the future expected sharing
of returns with policyholders on contracts with discretionary
participation features ('DPF'), to the extent this sharing is not
already included in liabilities under insurance contracts.
-- $(107)m (2017: $(41)m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life
insurance operations
Economic assumptions are set in a way that is consistent with
observable market values. The valuation of PVIF is sensitive to
observed market movements and the impact of such changes is
included in the sensitivities presented below.
2018 2017
Hong Kong France(1) Hong Kong France(1)
% % % %
Weighted average risk-free rate 2.29 1.52 2.02 1.50
Weighted average risk discount rate 5.90 2.35 6.20 2.20
Expense inflation 3.00 1.70 3.00 1.48
1 For 2018, the calculation of France's PVIF assumes a risk
discount rate of 2.35% (2017: 2.20%) plus a risk margin of $109m
(2017: $80m).
273 HSBC Holdings plc Annual Report and Accounts 2018
1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.
2 Settlement accounts, cash collateral and margin payables
included within 'Deposits by banks' and 'Customer accounts' were
reclassified from 'Trading liabilities' to 'Other liabilities' on 1
January 2018. This reclassification is to better reflect the nature
of these balances and ensure consistency of presentation.
Structured liabilities have moved from 'Trading liabilities' to
'Financial liabilities designated at fair value'. Comparative data
was not restated as the reclassification is not significant in the
context of other changes to the balance sheet resulting from the
adoption of IFRS 9. See Note 37 for further details.
3 Structured deposits placed at HSBC Bank USA and HSBC Trust
Company (Delaware) National Association are insured by the Federal
Deposit Insurance Corporation, a US government agency, up to
$250,000 per depositor.
4 'Other debt securities in issue' comprises structured notes
issued by HSBC for which market risks are actively managed as part
of trading portfolios.
24 Financial liabilities designated at fair value
HSBC
1 Structured liabilities have moved from 'Trading liabilities'
to 'Financial liabilities designated at fair value'. Comparatives
have not been restated. See Note 37 for further detail.
HSBC Holdings plc Annual Report and Accounts 2018 274
Notes on the financial statements
The carrying amount of financial liabilities designated at fair
value was $11,496m less than the contractual amount at maturity
(2017: $5,343m more). The cumulative amount of change in fair value
attributable to changes in credit risk was $209m (2017: loss of
$4,107m).
HSBC Holdings
2018 2017
$m $m
Debt securities in issue (Note 25) 17,767 17,496
Subordinated liabilities (Note 28) 7,282 13,394
At 31 Dec 25,049 30,890
The carrying amount of financial liabilities designated at fair
value was $920m more than the contractual amount at maturity
(2017: $3,370m more). The cumulative amount of change in fair
value attributable to changes in credit risk was a loss of $812m
(2017: loss of $2,209m).
25 Debt securities in issue
HSBC
2018 2017
Footnotes $m $m
162,277 146,539
33,816 23,100
196,093 169,639
1 (1,400) (40,734)
- financial liabilities designated at fair value (Note 24)
At 31 Dec 85,342 64,546
1 Structured liabilities (including debt securities in issue)
have moved from 'Trading liabilities' to 'Financial liabilities
designated at fair value'. Comparatives have not been restated. See
Note 37
for further detail.
HSBC Holdings
2018 2017
$m $m
Debt securities 68,567 51,754
Included within:
- financial liabilities designated at fair value (Note 24)
(17,767) (17,496)
At 31 Dec 50,800 34,258
26 Accruals, deferred income and other liabilities
Footnotes
Accruals and deferred income
Settlement accounts 1
Cash collateral and margin payables 1
Endorsements and acceptances
Employee benefit liabilities (Note 6)
Liabilities of disposal groups held for sale
Other liabilities
At 31 Dec
1 Settlement accounts, cash collateral and margin payables were
reclassified from 'Trading liabilities', 'Deposits by banks' and
'Customer accounts' to 'Other liabilities' on 1 January 2018.
This
reclassification is to better reflect the nature of these
balances and ensure consistency of presentation. Comparative data
was not restated as the reclassification is not significant in the
context of other changes to the balance sheet resulting from the
adoption of IFRS 9. See Note 37 for further details.
Accruals, deferred income and other liabilities include $87,390m
(2017: $34,048m) of financial liabilities, the majority of which
are measured at amortised cost.
27 Provisions
275 HSBC Holdings plc Annual Report and Accounts 2018
Provisions (excluding contractual commitments)
At 31 Dec 2017
Additions
Amounts utilised
Unused amounts reversed
Exchange and other movements
At 31 Dec 2018
Contractual commitments(1)
At 31 Dec 2017
Impact on transition to IFRS 9
Net change in expected credit loss provision and other
movements
At 31 Dec 2018
Total Provisions
At 31 Dec 2017
At 31 Dec 2018
Legal proceedings
Restructuring Contractual and regulatory Customer
costs commitments(1) matters remediation Other provisions Total
$m $m $m $m $m $m
At 1 Jan 2017 551 298 2,436 1,124 364 4,773
Additions 204 87 829 820 280 2,220
Amounts utilised (353) (3) (850) (543) (133) (1,882)
Unused amounts reversed (103) (135) (980) (52) (107) (1,377)
Exchange and other
movements 35 6 66 105 65 277
At 31 Dec 2017 334 253 1,501 1,454 469 4,011
1 The contractual commitments provision at 31 December 2017
represented IAS 37 provisions on off-balance sheet loan commitments
and guarantees, for which expected credit losses are provided
following transition to IFRS 9 on 1 January 2018. It further
includes provisions in respect of insurance contracts.
Further details of 'Legal proceedings and regulatory matters'
are set out in Note 35. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulators or law enforcement agencies in connection with alleged
wrongdoing by HSBC.
Customer remediation refers to HSBC's activities to compensate
customers for losses or damages associated with a failure to comply
with regulations or to treat customers fairly. Customer remediation
is often initiated by HSBC in response to customer complaints
and/or industry developments in sales practices, and is not
necessarily initiated by regulatory action. Further details of
customer remediation are set out in this note.
Refer to Note 37 for further information on the impact of IFRS 9
on undrawn loan commitments and financial guarantees, presented in
'Contractual commitments'. This provision results from the adoption
of IFRS 9 and has no comparatives. Further analysis of the movement
in the expected credit loss provision is disclosed within the
'Reconciliation of allowances for loans and advances to banks and
customers including loan commitments and financial guarantees'
table on page 100.
Payment protection insurance
At 31 December 2018, $555m (2017: $1,174m) of the customer
remediation provision relates to the estimated liability for
redress in respect of the possible mis-selling of payment
protection insurance ('PPI') policies in previous years.
An increase in provisions of $79m was recognised during the
second half of 2018, primarily reflecting an adjustment to expected
future complaint volumes as a result of increased levels of
observed complaints and of information requests during the
year.
The estimated liability for redress is calculated on the basis
of the total premiums paid by the customer plus simple interest of
8% per annum (or the rate inherent in the related loan product
where higher). The basis for calculating the redress liability is
the same for single premium and regular premium policies. Future
estimated redress levels are based on the historically observed
redress per policy.
A total of 5.4 million PPI policies have been sold since 2000,
generating estimated revenue of $3.3bn at 2018. The gross written
premiums on these policies were approximately $4.4bn.
At 31 December 2018, the estimated total complaints expected to
be received were 2.3 million, representing 42% of total policies
sold. It is estimated that contact will be made with regard to 2.6
million policies, representing 49% of total policies sold. This
estimate includes inbound complaints as well as the Group's
proactive contact exercise on certain policies ('outbound
contact').
HSBC Holdings plc Annual Report and Accounts 2018 276
Notes on the financial statements
The following table details the cumulative number of complaints
received at 31 December 2018 and the number of claims expected in
the future:
Cumulative PPI complaints received to 31 December 2018 and
future claims expected
Footnotes
Inbound complaints (000s of policies) 1
Outbound contact (000s of policies)
Response rate to outbound contact
Average uphold rate per claim 2
Average redress per claim ($)
Complaints to Financial Ombudsman Service (000s of policies)
Average uphold rate per Financial Ombudsman Service claim
1 Excludes invalid claims for which no PPI policy exists.
2 Claims include inbound and responses to outbound contact.
A 100,000 increase/decrease in the total inbound complaints
would increase/decrease the redress provision by approximately
$260m at 2018 average exchange rates.
28 Subordinated liabilities
HSBC's subordinated liabilities
2018 $m 2017 $m
At amortised cost 22,437 19,826
- subordinated liabilities 20,651 17,988
1,786 1,838
- preferred securities
Designated at fair value (Note 24) 14,693 24,290
- subordinated liabilities 14,282 23,831
411 459
- preferred securities
At 31 Dec 37,130 44,116
Issued by HSBC subsidiaries 13,168 15,470
Issued by HSBC Holdings 23,962 28,646
Subordinated liabilities rank behind senior obligations and
generally count towards the capital base of HSBC. Capital
securities may be called and redeemed by HSBC subject to prior
notification to the PRA and, where relevant, the consent of the
local banking regulator. If not redeemed at the first call date,
coupons payable may step up or become floating rate based on
interbank rates. On capital securities other than floating rate
notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed in the following table are
presented on an IFRS basis and do not reflect the amount that the
instruments contribute to regulatory capital principally due to
regulatory amortisation and regulatory eligibility limits.
277 HSBC Holdings plc Annual Report and Accounts 2018
HSBC's subordinated liabilities in issue
2018
$m
750
500
300
300
1,850
-
382
513
757
286
758
4,546
Tier 2 securities issued by The Hongkong and Shanghai Banking
Corporation Ltd
$400m Primary capital undated floating rate notes (third series)
Jul 1991 400
400
Tier 2 securities issued by HSBC Bank Malaysia Berhad
MYR500m 5.05% subordinated bonds Nov 2022 Nov 2027 121
121
Tier 2 securities issued by HSBC USA Inc.
$750m 5.00% subordinated notes - Sep 2020 747
$250m 7.20% subordinated debentures - Jul 2097 221
Other subordinated liabilities each less than $150m 4 269
1,237
Tier 2 securities issued by HSBC Bank USA, N.A.
$1,250m 4.875% subordinated notes - Aug 2020 1,226
$1,000m 5.875% subordinated notes - Nov 2034 1,106
$750m 5.625% subordinated notes - Aug 2035 829
$700m 7.00% subordinated notes - Jan 2039 697
3,858
Tier 2 securities issued by HSBC Finance Corporation
$2,939m 6.676% senior subordinated notes 5 - Jan 2021 507
Tier 2 securities issued by HSBC Bank Canada
Other subordinated liabilities each less than $150m Oct 1996 Nov
2083 29
29
Securities issued by HSBC Mexico, S.A.
$300m Non-convertible subordinated obligations 6, 7 Jun 2014 Jun
2019 -
Other subordinated liability less than $150m 2, 6 -
-
Securities issued by other HSBC subsidiaries
Other subordinated liabilities each less than $200m 4 273
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec 8
13,168
1 See paragraph below, 'Guaranteed by HSBC Holdings or HSBC Bank plc'.
2 These securities were redeemed in the first quarter of 2018.
3 The interest rate payable after November 2025 is the sum of
the three-month sterling Libor plus 1.50% percentage points.
4 Some securities included here are ineligible for inclusion in the capital base of HSBC.
5 HSBC tendered for these securities in 2017. In January 2018, a
further tender was conducted. The principal balance is now $507m.
The original notional of these securities is $2,939m.
6 These securities are ineligible for inclusion in the capital base of HSBC.
7 Approximately $60m of these securities were held by HSBC Holdings.
8 Information regarding the effects of adoption of IFRS 9 can be found in Note 37.
HSBC Holdings' subordinated liabilities
2018 2017
$m $m
At amortised cost 17,715 15,877
Designated at fair value (Note 24) 7,282 13,394
At 31 Dec 24,997 29,271
HSBC Holdings plc Annual Report and Accounts 2018 278
Notes on the financial statements
HSBC Holdings' subordinated liabilities in issue
First call Maturity
Footnotes date date
Tier 2 securities issued by HSBC
Holdings plc
Amounts owed to third parties
$2,000m 4.25% subordinated notes 2,3 - Mar 2024
$1,500m 4.25% subordinated notes 2 - Aug 2025
$1,500m 4.375% subordinated notes 2 - Nov 2026
$488m 7.625% subordinated notes 1 - May 2032
$222m 7.35% subordinated notes 1 - Nov 2032
$2,000m 6.5% subordinated notes 1 - May 2036
$2,500m 6.5% subordinated notes 1 - Sep 2037
$1,500m 6.8% subordinated notes 1 - Jun 2038
$1,500m 5.25% subordinated notes 2,3 - Mar 2044
GBP650m 5.75% subordinated notes 2 - Dec 2027
GBP650m 6.75% subordinated notes 2 - Sep 2028
GBP750m 7.0% subordinated notes 2 - Apr 2038
GBP900m 6.0% subordinated notes 2 - Mar 2040
EUR1,600m 6.25% subordinated
notes 2 - Mar 2018
EUR1,750m 6.0% subordinated notes 2 - Jun 2019
EUR1,500m 3.375% subordinated 2,3 Jan 2019 Jan 2024
notes
EUR1,500m 3.0% subordinated notes 2 - Jun 2025
EUR1,000m 3.125% subordinated
notes 2 - Jun 2028
Amounts owed to HSBC undertakings
$900m 10.176% subordinated step-up Jun 2030 Jun 2040
cumulative notes
At 31 Dec
1 Amounts owed to third parties represent securities included in
the capital base of HSBC as tier 2 securities in accordance with
the grandfathering provisions under CR0 IV rules.
2 These securities are included in the capital base of HSBC as
fully CR0 IV-compliant tier 2 securities on an end point basis.
3 These subordinated notes are measured at amortised cost in
HSBC Holdings, where the interest rate risk is hedged using a fair
value hedge, while they are measured at fair value in the
Group.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated
securities on which coupon payments may be deferred or cancelled at
the discretion of HSBC. The securities presented in this Note are
accounted for as liabilities because HSBC has an obligation to pay
dividends in perpetuity. See Note 32 for additional tier 1 capital
securities accounted for as equity.
The additional tier 1 securities presented in this section do
not meet the identifying criteria in full for recognition as tier 1
capital under CRD IV, but are eligible as regulatory capital
subject to grandfathering limits and progressive phase-out.
Guaranteed by HSBC Holdings or HSBC Bank plc
Capital securities guaranteed by HSBC Holdings or HSBC Bank plc
were issued by the Jersey limited partnerships. The proceeds of
these were lent to the respective guarantors by the limited
partnerships in the form of subordinated notes. They qualify as
additional tier 1 capital for HSBC under CRD IV by virtue of the
application of grandfathering provisions, and the two capital
securities guaranteed by HSBC Bank plc also qualify as additional
tier 1 capital for HSBC Bank plc (on a solo and a consolidated
basis) under CRD IV by virtue of the same grandfathering
process.
These preferred securities, together with the guarantee, are
intended to provide investors with economic rights equivalent to
the rights that they would have had if they had purchased
non-cumulative perpetual preference shares of the relevant issuer.
There are limitations on the payment of distributions if such
payments are prohibited under UK banking regulations or other
requirements, if a payment would cause a breach of HSBC's capital
adequacy requirements, or if HSBC Holdings or HSBC Bank plc has
insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank plc have individually covenanted
that, if prevented under certain circumstances from paying
distributions on the preferred securities in full, they will not
pay dividends or other distributions in respect of their ordinary
shares, or repurchase or redeem their ordinary shares, until the
distribution on the preferred securities has been paid in full.
If the consolidated total capital ratio of HSBC Holdings falls
below the regulatory minimum required, or if the Directors expect
it to do so in the near term, provided that proceedings have not
been commenced for the liquidation, dissolution or winding up of
HSBC Holdings, the holders' interests in the preferred securities
guaranteed by HSBC Holdings will be exchanged for interests in
preference shares issued by HSBC Holdings that have economic terms
which are in all material respects equivalent to the preferred
securities and their guarantee.
If any of the two issues guaranteed by HSBC Bank plc are
outstanding in April 2049 or November 2048 respectively, or if the
consolidated total capital ratio of HSBC Bank plc falls below the
regulatory minimum required, or if the Directors expect it to do so
in the near term, provided that proceedings have not been commenced
for the liquidation, dissolution or winding up of HSBC Bank plc,
the holders' interests in the preferred securities guaranteed by
HSBC Bank plc will be exchanged for interests in preference shares
issued by HSBC Bank plc that have economic terms which are in all
material respects equivalent to the preferred securities and their
guarantee.
Tier 2 capital securities
Tier 2 capital securities are either perpetual or dated
subordinated securities on which there is an obligation to pay
coupons. These capital securities are included within HSBC's
regulatory capital base as tier 2 capital under CRD IV by virtue of
the application of grandfathering provisions (with the exception of
identified securities that are compliant with CRD IV end point
rules). In accordance with CRD IV, the capital contribution of all
tier 2 securities is amortised for regulatory purposes in their
final five years before maturity.
279 HSBC Holdings plc Annual Report and Accounts 2018
29 Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 281 provides an analysis of consolidated total
assets, liabilities and off-balance sheet commitments by residual
contractual maturity at the balance sheet date. These balances are
included in the maturity analysis as follows:
-- Trading assets and liabilities (including trading derivatives
but excluding reverse repos, repos and debt securities in issue)
are included in the 'Due not more than 1 month' time bucket,
because trading balances are typically held for short periods of
time.
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due over 5 years'
time bucket. Undated or perpetual instruments are classified based
on the contractual notice period, which the counterparty of the
instrument is entitled to give. Where there is no contractual
notice period, undated or perpetual contracts are included in the
'Due over 5 years' time bucket.
-- Non-financial assets and liabilities with no contractual
maturity are included in the 'Due over 5 years' time bucket.
-- Financial instruments included within assets and liabilities
of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the
basis of the disposal transaction.
-- Liabilities under insurance contracts are included in the
'Due over 5 years' time bucket. Liabilities under investment
contracts are classified in accordance with their contractual
maturity. Undated investment contracts are included in the 'Due
over 5 years' time bucket, however, such contracts are subject to
surrender and transfer options by the policyholders.
-- Loan and other credit-related commitments are classified on
the basis of the earliest date they can be drawn down.
HSBC Holdings plc Annual Report and Accounts 2018 280
Notes on the financial statements
HSBC
Maturity analysis of assets, liabilities and off-balance sheet
commitments
Financial assets
Cash and balances
at central banks 162,843 - - - - - - - 162,843
Items in the
course
of collection
from
other banks 5,787 - - - - - - - 5,787
Hong Kong
Government
certificates of
indebtedness 35,859 - - - - - - - 35,859
Trading assets 235,443 264 707 744 104 197 671 - 238,130
Financial assets
designated or
otherwise
mandatorily
measured
at fair value 7,743 49 371 145 334 918 2,415 29,136 41,111
Derivatives 206,925 15 57 79 18 69 328 334 207,825
Loans and
advances
to banks 40,114 10,421 3,486 2,004 3,282 7,158 4,508 1,194 72,167
Loans and
advances 178,613 72,072 58,680 38,394 37,333 101,267 219,841
to customers 275,496 981,696
- personal 41,967 8,736 8,237 7,581 7,240 24,942 63,061 229,626 391,390
- corporate and
commercial 118,294 58,623 45,918 27,001 25,597 67,093 143,959 42,540 529,025
- financial 18,352 4,713 4,525 3,812 4,496 9,232 12,821 3,330 61,281
Reverse
repurchase
agreements
- non-trading 172,795 41,084 13,308 5,763 3,574 5,253 1,027 - 242,804
Financial
investments 40,421 58,731 30,464 15,707 15,357 41,866 92,846 112,041 407,433
Accrued income
and
other financial
assets 62,067 6,893 2,403 561 307 349 731 2,237 75,548
Financial assets
at 31 Dec 2018 1,148,610 189,529 109,476 63,397 60,309 157,077 322,367 420,438 2,471,203
Non-financial
assets - - - - - - - 86,921 86,921
Total assets at
31
Dec 2018 1,148,610 189,529 109,476 63,397 60,309 157,077 322,367 507,359 2,558,124
Off-balance sheet
commitments
received
Loan and other
credit-related
commitments 73,464 - - - 1 3 98 656 74,222
Financial
liabilities
Hong Kong
currency
notes in
circulation 35,859 - - - - - - - 35,859
Deposits by banks 42,406 3,457 1,043 784 542 5,558 1,655 886 56,331
Customer 1,225,919 66,990 31,315 17,218 13,760 4,122 3,194 125
accounts(1) 1,362,643
- personal 612,325 38,132 21,218 11,483 8,282 2,853 2,623 53 696,969
- corporate and
commercial 457,661 22,922 8,029 4,599 4,317 1,092 509 29 499,158
- financial 155,933 5,936 2,068 1,136 1,161 177 62 43 166,516
Repurchase
agreements
- non-trading 154,383 8,140 1,750 629 73 408 501 - 165,884
Items in the
course
of transmission
to
other banks 5,641 - - - - - - - 5,641
Trading
liabilities(2) 82,867 251 326 633 81 235 36 2 84,431
Financial
liabilities
designated at
3,813 4,476 6,878 3,076 3,481 12,545 53,615 60,621
fair value(2) 148,505
- debt securities
in issue:
covered
bonds - - 205 - - 1,190 2,721 1,137 5,253
- debt securities
in issue:
unsecured 981 1,562 2,659 2,290 2,353 9,143 47,443 37,633 104,064
- subordinated
liabilities
and preferred
securities - - 2,125 - - - - 12,568 14,693
- other 2,832 2,914 1,889 786 1,128 2,212 3,451 9,283 24,495
Derivatives 203,962 62 135 191 144 560 159 622 205,835
Debt securities
in 6,777 11,194 12,556 8,075 3,330 10,670 19,713 13,027
issue 85,342
- covered bonds - - - - - - 748 - 748
- otherwise
secured 2,166 1,100 30 - - 394 944 1,412 6,046
- unsecured 4,611 10,094 12,526 8,075 3,330 10,276 18,021 11,615 78,548
Accruals and
other
financial
liabilities 69,958 8,986 3,296 659 1,269 885 1,027 1,300 87,380
Subordinated
liabilities 6 89 3 - - 1,996 1,384 18,959 22,437
Total financial
liabilities at
31
Dec 2018 1,831,591 103,645 57,302 31,265 22,680 36,979 81,284 95,542 2,260,288
Non-financial
liabilities - - - - - - - 103,587 103,587
Total liabilities
at 31 Dec 2018 1,831,591 103,645 57,302 31,265 22,680 36,979 81,284 199,129 2,363,875
Off-balance sheet
commitments given
Loan and other
credit-related
commitments 769,311 5,281 941 1,972 1,257 361 731 412 780,266
- personal 203,622 974 59 32 201 280 556 331 206,055
- corporate and
commercial 441,199 2,694 799 1,895 974 34 150 73 447,818
- financial 124,490 1,613 83 45 82 47 25 8 126,393
281 HSBC Holdings plc Annual Report and Accounts 2018
Notes on the financial statements
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet
commitments
Financial liabilities
designated at fair
value - - 2,125 - - - 12,306 10,618 25,049
- debt securities
in issue - - - ---12,306 5,461 17,767
- subordinated liabilities
and preferred securities - - 2,125 ---- 5,157 7,282
Derivatives 1,321 - - - - - 339 499 2,159
Undrawn formal standby
facilities, credit
lines and other
commitments to lend - - - - - - - - -
283 HSBC Holdings plc Annual Report and Accounts 2018
Maturity analysis of assets, liabilities and off-balance sheet
commitments (continued)
Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
but not but not but not but not but not but not
more more more more more more than
than than than than than 5 years Due over
Due not more than 1 month 3 months 6 months 9 months 1 year 2 years 5 years Total
$m $m $m $m $m $m $m $m $m
Financial assets
Cash at bank and
in hand:
- balances with HSBC
undertakings 1,985 - - --- - - 1,985
Derivatives 1,952 - - --80 - 356 2,388
Loans and advances
to HSBC undertakings 4,861 13,039 3,145 521,134 29,560 24,881 76,627
Loans and advances
to HSBC undertakings
designated at fair
value - - - --- 2,411 9,533 11,944
Financial investments
in HSBC undertakings 17 3 - --- 1,798 2,446 4,264
Accrued income and
other financial assets - 4 - --- - 123 127
Total financial assets
at 31 Dec 2017 8,815 13,046 3,145 521,214 33,769 37,339 97,335
Non-financial assets - - - --- - 94,399 94,399
Total assets at 31
Dec 2017 8,815 13,046 3,145 521,214 33,769 131,738 191,734
Financial liabilities
Amounts owed to HSBC
undertakings 120 2,405 46 --- - - 2,571
Financial liabilities
designated at fair
value - - - --2,349 11,491 17,050 30,890
Derivatives 2,008 - - - - 110 183 781 3,082
Debt securities in
issue - - - - 1,081 - 10,354 22,823 34,258
Accruals and other
financial liabilities 439 395 157 39 7 3 1 11 1,052
Subordinated liabilities - 1,918 - - - - - 13,959 15,877
Total financial liabilities
at 31 Dec 2017 2,567 4,718 203 39 1,088 2,462 22,029 54,624 87,730
Non-financial liabilities - - - - - - - 217 217
Total liabilities
at 31 Dec 2017 2,567 4,718 203 39 1,088 2,462 22,029 54,841 87,947
Off-balance sheet
commitments given
Undrawn formal standby
facilities, credit
lines and other commitments
to lend - - - - - - - - -
30 Offsetting of financial assets and financial liabilities
In the following table, the 'Amounts not set off in the balance
sheet' include transactions where:
-- the counterparty has an offsetting exposure with HSBC and a
master netting or similar arrangement is in place with a right to
set off only in the event of default, insolvency or bankruptcy, or
the offset criteria are otherwise not satisfied; and
-- in the case of derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure the legal right to set off remains
appropriate.
HSBC Holdings plc Annual Report and Accounts 2018 284
Notes on the financial statements
1 At 31 December 2018, the amount of cash margin received that
had been offset against the gross derivatives assets was $3,935m
(2017: $6,324m). The amount of cash margin paid that had been
offset against the gross derivatives liabilities was $5,888m (2017:
$5,196m).
2 For the amount of repos, reverse repos, stock lending, stock
borrowing and similar agreements recognised on the balance sheet
within 'Trading assets' $18,280m (2017: $17,120m) and 'Trading
liabilities' $12,493m (2017: $10,618m), see the 'Funding sources
and uses' table on page 134.
3 At 31 December 2018, the total amount of 'Loans and advances
to customers' was $981,696m (2017: $962,964m), of which $28,066m
(2017: $31,667m) was subject to offsetting.
4 At 31 December 2018, the total amount of 'Customer accounts'
was $1,362,643m (2017: $1,364,462m), of which $27,818m (2017:
$32,109m) was subject to offsetting.
5 These exposures continue to be secured by financial
collateral, but we may not have sought or been able to obtain a
legal opinion evidencing enforceability of the right of offset.
31 Non-controlling interests
2018 2017
$m $m
Non-controlling interests attributable to holders of ordinary
shares in subsidiaries 7,996 7,621
At 31 Dec 7,996 7,621
Hang Seng Bank Limited is the only subsidiary in the Group that
gives rise to significant non-controlling interest. For summarised
financial information of Hang Seng Bank Limited, see Note 19.
285 HSBC Holdings plc Annual Report and Accounts 2018
32 Called up share capital and other equity instruments
Called up share capital and share premium
HSBC Holdings ordinary shares of $0.50 each, issued and fully
paid
Footnotes
At 1 Jan
Shares issued under HSBC employee share plans
Shares issued in lieu of dividends
Less: Shares repurchased and cancelled
At 31 Dec 1
HSBC Holdings 6.20% non-cumulative US Dollar Preference Shares,
Series A
HSBC Holdings share premium
2018 $m
At 31 Dec 13,609
Total called up share capital and share 2018 $m
premium
At 31 Dec 23,789
1 All HSBC Holdings ordinary shares in issue, excluding
325,273,407 shares held in treasury, confer identical rights,
including in respect of capital, dividends and voting.
2 Included in the capital base of HSBC as additional tier 1
capital in accordance with the CRD IV rules, by virtue of the
application of grandfathering provisions.
HSBC Holdings 6.20% non-cumulative US dollar preference shares,
Series A of $0.01
HSBC Holdings pays dividends on 6.20% non-cumulative US dollar
preference shares, Series A of $0.01 each ('dollar preference
shares') quarterly, at the discretion of the Board. The Board will
not declare a dividend on them if this would stop the company from
meeting the PRA's capital adequacy requirements, or if profit
available for distribution as dividends is insufficient to also pay
dividends on other shares that are equally entitled and scheduled
on the same date.
HSBC Holdings may not declare or pay dividends on shares ranking
lower in the right to dividends than dollar preference shares, or
redeem or purchase any of its other shares ranking equal or lower
than dollar preference shares, unless it has fully paid, or set
aside an amount to fully pay, the dividends on the dollar
preference shares for the then current dividend period.
The dollar preference shares carry no rights to conversion into
ordinary shares. Holders of dollar preference shares are only
entitled to attend and vote at shareholder meetings if dividends on
these shares have not been paid in full on four consecutive
dividend payment dates. In such circumstances, holders of these
shares are entitled to vote at shareholder meetings until HSBC
Holdings has paid a full dividend on them. These securities can be
redeemed by HSBC at any time, subject to prior approval by the
PRA.
HSBC Holdings non-cumulative preference share of GBP0.01
The one non-cumulative sterling preference share of GBP0.01
('sterling preference share') has been in issue since 29 December
2010 and is held by a subsidiary of HSBC Holdings. Dividends are
paid quarterly at the sole and absolute discretion of the Board.
The sterling preference share carries no rights of conversion into
ordinary shares of HSBC Holdings and no right to attend or vote at
shareholder meetings of HSBC Holdings. These securities can be
redeemed by HSBC at any time, subject to prior approval by the
PRA.
Other equity instruments
HSBC Holdings includes three types of additional tier 1 capital
securities in its tier 1 capital. Two are presented in this Note
and are accounted for as equity because HSBC does not have an
obligation to transfer cash or a variable number of its own
ordinary shares to holders under any circumstances outside its
control. See Note 28 for additional tier 1 securities accounted for
as liabilities.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated
securities on which coupon payments may be deferred at HSBC
Holdings' discretion. While any coupon payments are unpaid or
deferred, HSBC Holdings will not declare or pay dividends or make
distributions or similar periodic payments in respect of any
securities of lower or equal rank, or repurchase or redeem them.
Such securities do not generally carry voting rights, but rank
higher than ordinary shares for coupon payments, and in the event
of a winding-up. They do not meet the identifying criteria in full
for recognition as tier 1 capital under CRD IV, but are eligible as
regulatory capital subject to grandfathering limits and progressive
phase-out.
At HSBC Holdings' discretion, and subject to certain conditions
being satisfied, the capital securities may be exchanged on any
coupon payment date for non-cumulative preference shares to be
issued by HSBC Holdings and ranking pari passu with the dollar and
sterling preference shares in issue. The preference shares were
issued at a nominal value of $0.01 per share and a premium of
$24.99 per share, with both amounts being subscribed and fully
paid. These securities were redeemed by HSBC in June 2018.
HSBC Holdings plc Annual Report and Accounts 2018 286
33 Contingent liabilities, contractual commitments and guarantees
HSBC HSBC Holdings(1)
1 Guarantees by HSBC Holdings are all in favour of other Group entities.
2 'Financial guarantees' to which the impairment requirements in
IFRS 9 are applied have been presented separately from other
guarantees to align with credit risk disclosures. Comparatives have
been re-presented accordingly.
3 The 31 December 2017 balances have been restated to include
$44bn of loan commitments (unsettled reverse repurchase agreements)
and $3bn of performance and other guarantees not previously
identified for disclosure.
4 Includes $592,008m of commitments at 31 December 2018, to
which the impairment requirements in IFRS 9 are applied where HSBC
has become party to an irrevocable commitment.
The preceding table discloses the nominal principal amounts of
off-balance sheet liabilities and commitments for the Group, which
represent the maximum amounts at risk should the contracts be fully
drawn upon and the clients default. As a significant portion of
guarantees and commitments are expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements. The expected credit
loss provision relating to guarantees and commitments under IFRS 9
is disclosed in Note 27.
Approximately half the guarantees have a term of less than one
year, while guarantees with terms of more than one year are subject
to HSBC's annual credit review process.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against Group companies are disclosed
in Notes 27 and 35.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') has provided
compensation to consumers following the collapse of a number of
deposit takers. The compensation paid out to consumers was funded
through loans from HM Treasury, which have now been repaid (2017:
$6.3bn (GBP4.7bn)). The Group could be liable to pay a proportion
of any future amounts that the FSCS borrows from HM Treasury. The
ultimate FSCS levy to the industry as a result of a collapse cannot
currently be estimated reliably, as it is dependent on various
uncertain factors, including the potential recoveries of assets by
the FSCS and changes in the level of protected deposits and the
population of FSCS members at the time.
Associates
HSBC's share of associates' contingent liabilities, contractual
commitments and guarantees amounted to $48.5bn at 31 December 2018
(2017: $46.3bn). No matters arose where HSBC was severally
liable.
34 Lease commitments
Operating lease commitments
At 31 December 2018, future minimum lease payments under
non-cancellable operating leases for land, buildings and equipment
were $3,435m (2017: $3,950m).
Finance lease receivables
HSBC leases a variety of assets to third parties under finance
leases, including transport assets (such as aircraft), property and
general plant and machinery. At the end of lease terms, assets may
be sold to third parties or leased for further terms. Rentals are
calculated to recover the cost of assets less their residual value,
and earn finance income.
Notes on the financial statements
35 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a
number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, HSBC considers
that none of these matters are material. The recognition of
provisions is determined in accordance with the accounting policies
set out in Note 1. While the outcome of legal proceedings and
regulatory matters is inherently uncertain, management believes
that, based on the information available to it, appropriate
provisions have been made in respect of these matters as at 31
December 2018 (see Note 27). Where an individual provision is
material, the fact that a provision has been made is stated and
quantified, except to the extent that doing so would be seriously
prejudicial. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. It is not practicable
to provide an aggregate estimate of potential liability for our
legal proceedings and regulatory matters as a class of contingent
liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC ('Madoff Securities'), is being
liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual
transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are
estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US litigation: The Trustee has brought lawsuits against various
HSBC companies and others in the US Bankruptcy Court, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the
actions have moved to dismiss the Trustee's claims. The US
Bankruptcy Court granted HSBC's motion to dismiss with respect to
certain of the Trustee's claims in November 2016. In September
2017, the Trustee appealed the US Bankruptcy Court's decision, and
the case remains pending before the US Court of Appeals for the
Second Circuit (the 'Second Circuit Court of Appeals').
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court issued an opinion, which ruled in favour of the
defendants' motion to dismiss in respect of certain claims by the
liquidators for Fairfield and granted a motion by the liquidators
for Fairfield to file amended complaints.
In December 2014, SPV Optimal SUS Ltd ('SPV OSUS'), the
purported assignee of the Madoff-invested company, Optimal
Strategic US Equity Ltd, filed a lawsuit in New York state court
against various HSBC companies and others, seeking damages on
various alleged grounds, including breach of fiduciary duty and
breach of trust. In April 2018, HSBC transferred the case to the US
District Court for the Southern District of New York (the 'New York
District Court'). In February 2019, SPV OSUS withdrew its action
with prejudice against HSBC.
UK litigation: The Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2019 for UK-based defendants
and November 2019 for all other defendants.
Bermuda litigation: In January 2009, Kingate Global Fund Limited
and Kingate Euro Fund Limited (together, 'Kingate') brought an
action against HSBC Bank Bermuda Limited ('HBBM') for recovery of
funds held in Kingate's accounts, fees and dividends. This action
is pending, but is not expected to move forward until the
resolution of the Trustee's US actions against Kingate and
HBBM.
Cayman Islands litigation: In February 2013, Primeo Fund Limited
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited, alleging breach of contract and breach of
fiduciary duty and claiming damages and equitable compensation. The
trial concluded in February 2017 and, in August 2017, the court
dismissed all claims against the defendants. In September 2017,
Primeo appealed to the Court of Appeal of the Cayman Islands and
the defendants cross-appealed in respect of certain of the trial
court's findings. The appeals are pending before the court for a
decision.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution claim and its claim for money damages.
Herald has appealed this judgment to the Luxembourg Court of
Appeal, where the matter is pending. In late 2018, Herald brought
additional claims against HSSL and HSBC Bank plc before the
Luxembourg District Court, seeking further restitution and
damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. This action has been temporarily
suspended at the plaintiffs' request. In December 2018, Alpha Prime
brought additional claims before the Luxembourg District Court
seeking damages against various HSBC companies.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical claims
before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch before the Luxembourg District Court, seeking restitution of
Senator's securities or money damages.
HSSL has also been named as a defendant in various actions by
shareholders in Primeo Select Fund, Herald, Herald (Lux) SICAV and
Hermes International Fund Limited. Most of these actions have been
dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited brought
an action against HSBC Institutional Trust Services (Ireland)
Limited ('HTIE') and others, based on allegations of breach of
contract and claiming damages and indemnification for fund losses.
The trial commenced in October 2018. In December 2018, the Irish
High Court issued a judgment in HTIE's favour on a preliminary
issue, holding that Defender Limited had no effective claim against
HTIE. This judgment concluded the trial without further issues in
dispute being heard. In February 2019, Defender Limited appealed
the judgment.
In December 2014, SPV OSUS filed an action against HTIE and HSBC
Securities Services (Ireland) Limited alleging breach of contract
and claiming damages and indemnification for fund losses, which was
dismissed on the basis of a preliminary issue by the Irish High
Court in October 2015. In July 2018, following further appeals by
SPV OSUS, the Irish Supreme Court affirmed the dismissal on a final
basis.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought. Based upon the information currently available,
management's estimate of the possible aggregate damages that might
arise as a result of all claims in the various Madoff-related
proceedings is up
289 HSBC Holdings plc Annual Report and Accounts 2018
to or exceeding $500m, excluding costs and interest. Due to
uncertainties and limitations of this estimate, the ultimate
damages could differ significantly from this amount.
US mortgage securitisation activity and litigation
HSBC Bank USA N.A. ('HSBC Bank USA') was a sponsor or seller of
loans used to facilitate whole loan securitisations underwritten by
HSBC Securities (USA) Inc. ('HSI'). From 2005 to 2007, HSBC Bank
USA purchased and sold approximately $24bn of such loans to HSI,
which were subsequently securitised and sold by HSI to third
parties. The outstanding principal balance was approximately $3.8bn
as at 31 December 2018. In addition, HSI served as an underwriter
on securitisations issued by HSBC Finance Corporation ('HSBC
Finance') or third parties, and HSBC Bank USA served as a trustee
on behalf of various mortgage securitisation trusts.
Mortgage trustee matters: Beginning in June 2014, a number of
lawsuits were filed in state and federal courts in New York and
Virginia against HSBC Bank USA as a trustee of more than 280
mortgage securitisation trusts. These lawsuits are brought on
behalf of the trusts by a putative class of investors including,
among others, BlackRock and PIMCO funds. The complaints allege that
the trusts have sustained losses in collateral value of
approximately $38bn. The lawsuits seek unspecified damages
resulting from alleged breaches of the US Trust Indenture Act,
breach of fiduciary duty, negligence, breach of contract and breach
of the common law duty of trust. HSBC's motions to dismiss in
several of these lawsuits were, for the most part, denied. In
February 2018, one of these matters was dismissed on procedural
grounds. The plaintiff in that action has appealed the decision and
has also filed another proceeding in New York state court, which is
currently stayed pending appeal. The motion for class certification
filed by certain plaintiffs has been denied, as has their request
for a review of that decision by the Second Circuit Court of
Appeals.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters.
Loan repurchase matters: Since 2013, HSBC Bank USA, HSBC Finance
and Decision One Mortgage Company LLC ('Decision One'), an indirect
subsidiary of HSBC Finance, have been named as defendants in
various mortgage loan repurchase actions brought by trustees of
mortgage securitisation trusts. One of the two remaining actions
against HSBC Bank USA was dismissed on appeal in December 2017;
however, the New York Court of Appeals granted the plaintiffs'
request for further review in September 2018. The second remaining
action is currently pending before the New York state court.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
RMBS investigations: Since 2010, various HSBC entities have
received subpoenas and requests for information from the US
Department of Justice (the 'DoJ') and the Massachusetts Attorney
General, seeking the production of documents and information
regarding HSBC's involvement in certain residential mortgage-backed
securities ('RMBS') transactions as an issuer, sponsor,
underwriter, depositor, trustee, custodian or servicer.
In August and October 2018, HSBC resolved the Massachusetts
Attorney General's civil investigation, and the DoJ's civil claims,
relating to HSBC's legacy RMBS origination and securitisation
activities from 2005 to 2007, which entailed a payment to the DoJ
of a civil money penalty of $765m.
Anti-money laundering and sanctions-related matters
In 2010, HSBC Bank USA entered into a consent cease-and-desist
order with the Office of the Comptroller of the Currency ('OCC'),
and HSBC North America Holdings Inc. ('HNAH') entered into a
consent cease-and-desist order with the Federal Reserve Board
('FRB'). In 2012, HSBC Bank USA further entered into an
enterprise-wide compliance consent order with the OCC (each an
'Order' and together, the 'Orders'). These Orders required
improvements to establish an effective compliance risk management
programme across HSBC's US businesses, including risk management
related to the Bank Secrecy Act ('BSA') and anti-money laundering
('AML') compliance. In 2012, an additional consent order was
entered into with the OCC that required HSBC Bank USA to correct
the circumstances noted in the OCC's report and imposed
restrictions on HSBC Bank USA acquiring control of, or holding an
interest in, any new financial subsidiary, or commencing a new
activity in its existing financial subsidiary, without the OCC's
approval. Between June and September 2018,
following implementation of the required remediation actions by
HNAH and HSBC Bank USA, the FRB and OCC terminated each of these
orders.
In December 2012, among other agreements, HSBC Holdings plc
('HSBC Holdings') agreed to an undertaking with the UK Financial
Conduct Authority ('FCA') and consented to a cease-and-desist order
with the FRB, both of which contained certain forward-looking AML
and sanctions-related obligations. HSBC also agreed to retain an
independent compliance monitor (who is, for FCA purposes, a
'Skilled Person' under section 166 of the Financial Services and
Markets Act and, for FRB purposes, an 'Independent Consultant') to
produce periodic assessments of the Group's AML and sanctions
compliance programme (the 'Skilled Person/Independent Consultant').
In December 2012, HSBC Holdings also entered into an agreement with
the Office of Foreign Assets Control ('OFAC') regarding historical
transactions involving parties subject to OFAC sanctions. The
Skilled Person/Independent Consultant will continue to conduct
country reviews and provide periodic reports for a period of time
at the FCA's and FRB's discretion. The role of the Skilled
Person/Independent Consultant is discussed on page 85.
Through the Skilled Person/Independent Consultant's
country-level reviews, as well as internal reviews conducted by
HSBC, certain potential AML and sanctions compliance issues have
been identified that HSBC is reviewing further with the FRB, FCA
and/or OFAC. The Financial Crimes Enforcement Network of the US
Treasury Department, as well as the Civil Division of the US
Attorney's Office for the Southern District of New York, are
investigating the collection and transmittal of third-party
originator information in certain payments instructed over HSBC's
proprietary payment systems. The FCA is also conducting an
investigation into HSBC Bank plc's compliance with UK money
laundering regulations and financial crime systems and controls
requirements. HSBC is cooperating with all of these
investigations.
In May 2014, a shareholder derivative action was filed by a
shareholder of HSBC Holdings purportedly on behalf of HSBC
Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal
Corporate Defendants') in New York state court against certain
current and former directors and officers of those HSBC companies
(the 'Individual Defendants'). The complaint alleges that the
Individual Defendants breached their fiduciary duties to the
Nominal Corporate Defendants and caused a waste of corporate assets
by allegedly permitting and/or causing the conduct underlying the
five-year deferred prosecution agreement with the DoJ, entered into
in December 2012. In November 2015, the New York state court
granted the Nominal Corporate Defendants' motion to dismiss. In
November 2018, the appellate court reversed the New York state
court's decision and reinstated the action. In December 2018, the
Nominal Corporate Defendants filed a motion for reargument or, in
the alternative, for leave to appeal to the New York Court of
Appeals. In February 2019, the Nominal Corporate Defendants and
most of the Individual Defendants filed a motion to dismiss in the
New York state court, where the matter is pending.
In July 2014, a claim was filed in the Ontario Superior Court of
Justice against HSBC Holdings and a former employee purportedly on
behalf of a class of persons who purchased HSBC common shares and
American Depositary Shares between July 2006 and July 2012. The
complaint, which seeks monetary damages of up to CA$20bn, alleges
that the defendants made statutory and common law
misrepresentations in documents released by HSBC Holdings and its
wholly owned indirect subsidiary, HSBC Bank Canada, relating to
HSBC's compliance with BSA, AML, sanctions and other laws. In
September 2017, the Ontario Superior Court of Justice dismissed the
statutory claims against HSBC Holdings and the former employee for
lack of jurisdiction, and stayed the common law misrepresentation
claim against HSBC Holdings on the basis of forum non conveniens.
In October 2017, the plaintiff appealed to the Court of Appeal for
Ontario and, in July 2018, that appeal was dismissed. In October
2018, the plaintiff applied for leave to appeal to the Supreme
Court of Canada, where this matter is currently pending.
HSBC Holdings plc Annual Report and Accounts 2018 290
Notes on the financial statements
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in the Middle East or of cartel violence in
Mexico. In each case, it is alleged that the defendants aided and
abetted the unlawful conduct of various sanctioned parties in
violation of the US Anti-Terrorism Act. Nine actions are currently
pending in federal court in New York, with one on appeal. In July
2018, in one case, the New York District Court granted HSBC's
motion to dismiss, while in a different case, the magistrate judge
issued a recommendation that the New York District Court should
deny the defendants' motion to dismiss. The plaintiffs appealed the
decision in the case granting dismissal and that appeal is pending.
Motions to dismiss remain pending in two other cases. In December
2018, three new cases and two cases relating to existing actions
were filed in the New York District Court. These new actions are at
a very early stage.
In July 2018, a claim was issued against HSBC Holdings in the
High Court of England and Wales alleging that HSBC Holdings made
untrue and/or misleading statements and/or omissions in public
statements between 2007 and 2012 regarding compliance by the HSBC
Group with AML, anti-terrorist financing and sanctions laws,
regulations and requirements, and the regulatory compliance of the
HSBC Group more generally.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Tax-related investigations
Various tax administration, regulatory and law enforcement
authorities around the world, including in the US, Belgium,
Argentina, India and Spain, are conducting investigations and
reviews of HSBC Private Bank (Suisse) SA ('HSBC Swiss Private
Bank') and other HSBC companies in connection with allegations of
tax evasion or tax fraud, money laundering and unlawful
cross-border banking solicitation.
HSBC continues to cooperate in ongoing investigations by the DoJ
and the US Internal Revenue Service regarding whether certain HSBC
companies and employees, including those associated with HSBC Swiss
Private Bank and an HSBC company in India, acted appropriately in
relation to certain customers who may have had US tax reporting
obligations. In connection with these investigations, HSBC Swiss
Private Bank, with due regard for Swiss law, has produced records
and other documents to the DoJ. In August 2013, the DoJ informed
HSBC Swiss Private Bank that it was not eligible for the 'Program
for Non-Prosecution Agreements or Non-Target Letters for Swiss
Banks' since a formal investigation had previously been authorised.
These investigations remain pending.
In November 2014, HSBC Swiss Private Bank was placed under
formal criminal examination in Belgium for alleged tax-related
offences. In June 2017, Belgian authorities also placed HSBC
Holdings and HSBC Private Bank Holdings (Suisse) SA, a Swiss
holding company, under formal criminal examination. HSBC is
cooperating with this ongoing investigation.
In November 2014, the Argentine tax authority initiated a
criminal action against various individuals, including current and
former HSBC employees. The criminal action includes allegations of
tax evasion, conspiracy to launder undeclared funds and an unlawful
association among HSBC Swiss Private Bank, HSBC Bank Argentina,
HSBC Bank USA and certain HSBC employees, which allegedly enabled
numerous HSBC customers to evade their Argentine tax obligations.
HSBC is cooperating with this ongoing investigation.
In February 2015, the Indian tax authority issued a summons and
request for information to an HSBC company in India. In August 2015
and November 2015, HSBC companies received notices issued by two
offices of the Indian tax authority, alleging that the Indian tax
authority had sufficient evidence to initiate prosecution against
HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly
abetting tax evasion of four different Indian individuals and/or
families and requesting that the HSBC companies show cause as to
why such prosecution should not be initiated. HSBC Swiss Private
Bank and the HSBC company in Dubai have responded to the show cause
notices. HSBC is cooperating with this ongoing investigation.
As at 31 December 2018, HSBC has recognised a provision for
these various matters in the amount of $626m. There are many
factors that may affect the range of outcomes, and the resulting
financial impact, of these investigations and reviews. Based on the
information currently available, management's estimate of the
possible aggregate penalties that might arise as a result of the
matters in respect of which it is practicable to form estimates is
up to or exceeding $800m, including amounts for which a provision
has been recognised. Due to uncertainties and limitations of these
estimates, the ultimate penalties could differ significantly from
this amount.
In light of the media attention regarding these matters, it is
possible that other tax administration, regulatory or law
enforcement authorities will also initiate or enlarge similar
investigations or regulatory proceedings.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
In December 2016, the European Commission (the 'EC') issued a
decision finding that HSBC, among other banks, engaged in
anti-competitive practices in connection with the pricing of euro
interest rate derivatives in early 2007. The EC imposed a fine on
HSBC based on a one-month infringement. HSBC has appealed the
decision.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act ('US
CEA') and state law. The lawsuits include individual and putative
class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court.
In 2017 and 2018, HSBC reached agreements with plaintiffs to
resolve putative class actions brought on behalf of the following
five groups of plaintiffs: persons who purchased US dollar
Libor-indexed bonds; persons who purchased US Libor-indexed
exchange-traded instruments; US-based lending institutions that
made or purchased US dollar Libor-indexed loans (the 'Lender
class'); persons who purchased US dollar Libor-indexed interest
rate swaps and other instruments directly from the defendant banks
and their affiliates (the 'OTC class'); and persons who purchased
US dollar Libor-indexed interest rate swaps and other instruments
from certain financial institutions that are not the defendant
banks or their affiliates. During 2018, the New York District Court
granted final approval of the settlements with the OTC and Lender
classes. The remaining settlements are subject to final court
approval. Additionally, a number of other US dollar Libor-related
actions remain pending against HSBC in the New York District Court
and the Second Circuit Court of Appeals.
Intercontinental Exchange ('ICE') Libor: In January 2019, HSBC
and other panel banks were named as defendants in a putative class
action filed in the New York District Court on behalf of persons
who purchased over-the-counter instruments paying interest indexed
to ICE Libor from a panel bank. The complaint alleges, among other
things, misconduct related to the suppression of this benchmark
rate in violation of US antitrust and state law. This matter is at
a very early stage.
Singapore interbank offered rate ('Sibor'), Singapore swap offer
rate ('SOR') and Australia bank bill swap rate ('BBSW'): In July
2016 and August 2016, HSBC and other panel banks were named as
defendants in two putative class actions filed in the New York
District Court on behalf of persons who transacted in products
related to the Sibor, SOR and BBSW benchmark rates. The complaints
allege, among other things, misconduct related to these benchmark
rates in violation of US antitrust, commodities and racketeering
laws, and state law. Following a decision in October 2018 on the
defendants' motion to dismiss in the Sibor/SOR litigation, the
claims against a number of HSBC entities were dismissed, and the
Hongkong and Shanghai Banking Corporation Limited remains the only
HSBC defendant in this action. In October 2018, the Hongkong and
Shanghai Banking Corporation Limited filed a motion for
reconsideration of the
291 HSBC Holdings plc Annual Report and Accounts 2018
decision based on the issue of personal jurisdiction. The
plaintiff filed a third amended complaint in October 2018 naming
only the Sibor panel members. In November 2018, the defendants
moved to dismiss the third amended complaint, and this motion
remains pending.
In November 2018, the court granted in part and denied in part
the defendants' motion to dismiss the BBSW case and dismissed all
foreign defendants, including all the HSBC entities, on personal
jurisdiction grounds. The plaintiff sought leave to file a second
amended complaint in January 2019.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Foreign exchange-related investigations and litigation
Various regulators and competition authorities around the world,
including in the EU, Switzerland, Brazil and South Africa, are
conducting investigations and reviews into trading by HSBC and
others on the foreign exchange markets. HSBC is cooperating with
these investigations and reviews.
In January 2018, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the
DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with
two particular transactions in 2010 and 2011. This concluded the
DoJ's investigation into HSBC's historical foreign exchange
activities. Under the terms of the FX DPA, HSBC has a number of
ongoing obligations, including implementing enhancements to its
internal controls and procedures in its Global Markets business,
which will be the subject of annual reports to the DoJ. In
addition, HSBC agreed to pay a financial penalty and
restitution.
In December 2016, Brazil's Administrative Council of Economic
Defense ('CADE') publicly announced that it is initiating an
investigation into the onshore foreign exchange market and has
identified a number of banks, including HSBC, as subjects of its
investigation.
In February 2017, the Competition Commission of South Africa
referred a complaint for proceedings before the South African
Competition Tribunal against 18 financial institutions, including
HSBC Bank plc, for alleged misconduct related to the foreign
exchange market in violation of South African antitrust laws. In
April 2017, HSBC Bank plc filed an exception to the complaint based
on a lack of jurisdiction and statute of limitations. In January
2018, the South African Competition Tribunal approved the
provisional referral of additional financial institutions,
including HSBC Bank USA, to the proceedings. HSBC Bank USA has
objected to the provisional referral. These proceedings are at an
early stage.
In October 2018, HSBC Holdings and HSBC Bank plc received an
information request from the EC concerning potential coordination
in foreign exchange options trading. This matter is at an early
stage.
In late 2013 and early 2014, various HSBC companies and other
banks were named as defendants in various putative class actions
consolidated in the New York District Court. The consolidated
complaint alleged, among other things, that the defendants
conspired to manipulate the WM/Reuters foreign exchange benchmark
rates. In September 2015, HSBC reached an agreement with plaintiffs
to resolve the consolidated action, and the court granted final
approval of the settlement in August 2018.
A putative class action complaint making similar allegations on
behalf of retail customers of foreign exchange products was filed
in the US District Court for the Northern District of California in
2015, and was subsequently transferred to the New York District
Court where it remains pending. In 2017, putative class action
complaints making similar allegations on behalf of purported
'indirect' purchasers of foreign exchange products were filed in
New York and were subsequently consolidated in the New York
District Court, where they remain pending.
In September 2018, various HSBC companies and other banks were
named as defendants in a class action complaint filed in Israel
that alleges foreign exchange-related misconduct and, in November
and December 2018, complaints alleging foreign exchange-related
misconduct were filed in the New York District Court and the High
Court of England and Wales against HSBC and other defendants, by
certain plaintiffs that opted out of the US class action
settlement. These matters are at an early stage. It is possible
that additional actions will be initiated against HSBC in relation
to its historical foreign exchange activities.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Precious metals fix-related investigations and litigation
In November 2014, the Antitrust Division and Criminal Fraud
Section of the DoJ issued a document request to HSBC Holdings,
seeking the voluntary production of certain documents in connection
with a criminal investigation that the DoJ is conducting of alleged
anti-competitive and manipulative conduct in precious metals
trading. In January 2019, the DoJ closed its investigation without
taking any action against HSBC.
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC and other members of The London Gold Market
Fixing Limited as defendants. The complaints allege that, from
January 2004 to June 2013, the defendants conspired to manipulate
the price of gold and gold derivatives for their collective benefit
in violation of US antitrust laws, the US CEA and New York state
law. The actions were consolidated in the New York District Court.
The defendants' motion to dismiss the consolidated action was
granted in part and denied in part in October 2016. In June 2017,
the court granted the plaintiffs leave to file a third amended
complaint, naming a new defendant. The court has denied the
pre-existing defendants' request for leave to file a joint motion
to dismiss, and discovery is proceeding.
Beginning in December 2015, numerous putative class actions
under Canadian law were filed in the Ontario and Quebec Superior
Courts of Justice against various HSBC companies and other
financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired
to manipulate the price of gold and gold derivatives in violation
of the Canadian Competition Act and common law. These actions are
at an early stage.
Silver: Beginning in July 2014, numerous putative class actions
were filed in the US District Courts for the Southern and Eastern
Districts of New York, naming HSBC and other members of The London
Silver Market Fixing Ltd as defendants. The complaints allege that,
from January 2007 to December 2013, the defendants conspired to
manipulate the price of silver and silver derivatives for their
collective benefit in violation of US antitrust laws, the US CEA
and New York state law. The actions were consolidated in the New
York District Court. The defendants' motion to dismiss the
consolidated action was granted in part and denied in part in
October 2016. In June 2017, the court granted the plaintiffs leave
to file a third amended complaint, which names several new
defendants. The court has denied the pre-existing defendants'
request for leave to file a joint motion to dismiss, and discovery
is proceeding.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of
silver and silver derivatives in violation of the Canadian
Competition Act and common law. The Ontario action is at an early
stage. The Quebec action has been temporarily stayed.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals ('PGM')
and PGM-based financial products for their collective benefit in
violation of US antitrust laws and the US CEA. In March 2017, the
defendants' motion to dismiss the second amended consolidated
complaint was granted in part and denied in part. In June 2017, the
plaintiffs filed a third amended complaint. The defendants filed a
joint motion to dismiss, which remains pending.
HSBC Holdings plc Annual Report and Accounts 2018 292
Notes on the financial statements
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Film finance litigation
In July and November 2015, respectively, two actions were
brought by individuals against HSBC Private Bank (UK) Limited
('PBGB') in the High Court of England and Wales seeking damages on
various alleged grounds, including breach of duty to the claimants,
in connection with their participation in certain Ingenious film
finance schemes. These actions are ongoing.
In December 2018, a further action was brought against PBGB in
the High Court of England and Wales by multiple claimants seeking
damages for alleged unlawful means conspiracy and dishonest
assistance in connection with lending provided by PBGB to third
parties in respect of certain Ingenious film finance schemes in
which the claimants participated. In February 2019, PBGB received a
letter before claim by investors in Eclipse film finance schemes
asserting various claims against PBGB and others in connection with
their roles in facilitating the design, promotion and operation of
such schemes. These matters are at very early stages.
It is possible that additional actions or investigations will be
initiated against PBGB as a result of its historical involvement in
the provision of certain film finance-related services.
Based on the facts currently known, it is not practicable to
predict the resolution of these matters, including the timing or
possible aggregate impact, which could be significant.
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
-- requests for information from various tax administration or
regulatory authorities relating to Mossack Fonseca & Co., or
Fédération Internationale de Football Association ('FIFA');
-- an investigation by the DoJ regarding US Treasury securities trading practices;
-- an investigation by the US Commodity Futures Trading
Commission regarding trading screens used to price certain
derivative products;
-- an investigation by the Swiss Competition Commission in
connection with the setting of Euribor and Japanese yen Libor;
-- an information request from the UK Competition and Markets
Authority concerning the financial services sector;
-- an investigation by the US Securities and Exchange Commission
of multiple institutions, including HSBC, in relation to hiring
practices of candidates referred by or related to government
officials or employees of state-owned enterprises in
Asia-Pacific;
-- putative individual and class actions brought in the New York
District Court relating to the Canadian dealer offered rate, the
credit default swap market and the Mexican government bond market,
and putative class actions brought in the New York District Court
and in the Superior and Federal Courts in Canada relating to the
market for US dollar-denominated supranational sovereign and agency
bonds; and
-- putative class actions brought in the US District Court for
the Northern District of Texas and a claim issued in the High Court
of England and Wales in connection with HSBC Bank plc's role as a
correspondent bank to Stanford International Bank Ltd from 2003 to
2009.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
36 Related party transactions
Related parties of the Group and HSBC Holdings include
subsidiaries, associates, joint ventures, post-employment benefit
plans for HSBC employees, Key Management Personnel ('KMP') as
defined by IAS 24, close family members of KMP and entities that
are controlled or jointly controlled by KMP or their close family
members. KMP are defined as those persons having authority and
responsibility for planning, directing and controlling the
activities of HSBC Holdings. These individuals also constitute
'senior management' for the purposes of the Hong Kong Listing
Rules. Following a review of the application of IAS 24, it was
determined that the roles of Chief Legal Officer, Group Head of
Internal Audit, Group Chief Human Resources Officer, Group Chief
Compliance Officer, Chief Communications Officer and Group Chief of
Staff did not meet the criteria for KMP as provided for in the
standard.
Particulars of transactions with related parties are tabulated
below. The disclosure of the year-end balance and the highest
amounts outstanding during the year is considered to be the most
meaningful information to represent the amount of the transactions
and outstanding balances during the year.
Key Management Personnel
Details of Directors' remuneration and interest in shares are
disclosed in the Directors' remuneration report on pages 172 to
206. IAS 24 'Related party disclosures' requires the following
additional information for key management compensation.
Compensation of Key Management Personnel
Short-term employee benefits
Other long-term employee benefits
Share-based payments
Year ended 31 Dec
Shareholdings, options and other securities of Key Management
Personnel
Number of options held over HSBC Holdings ordinary shares under
employee share plans
Number of HSBC Holdings ordinary shares held beneficially and
non-beneficially At 31 Dec
293 HSBC Holdings plc Annual Report and Accounts 2018
Transactions and balances during the year with Key Management
Personnel
Footnotes
Key Management Personnel 1
Advances and credits 2
Guarantees
Deposits
1 Includes Key Management Personnel, close family members of Key
Management Personnel and entities that are controlled or jointly
controlled by Key Management Personnel or their close family
members.
2 Advances and credits entered into by subsidiaries of HSBC
Holdings during 2018 with Directors, disclosed pursuant to Section
413 of the Companies Act 2006, totalled $1m (2017: $2m).
Some of the transactions were connected transactions as defined
by the Rules Governing The Listing of Securities on The Stock
Exchange of Hong Kong Limited, but were exempt from any disclosure
requirements under the provisions of those rules. The above
transactions were made in the ordinary course of business and on
substantially the same terms, including interest rates and
security, as for comparable transactions with persons of a similar
standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
Associates and joint ventures
The Group provides certain banking and financial services to
associates and joint ventures including loans, overdrafts, interest
and non-interest bearing deposits and current accounts. Details of
the interests in associates and joint ventures are given in Note
18.
HSBC Holdings plc Annual Report and Accounts 2018 294
Notes on the financial statements
Transactions and balances during the year with associates and
joint ventures
2018
Highest balance
Balance at
during the year
31 Dec
$m $m
2017
Highest Balance
balance at 31
during Dec
the year $m
$m
1,985 1,985
11,944 11,944
2,796 2,388
89,810 76,627
4,264 4,264
95,850 92,930
206,649 190,138
2,906 2,571
4,904 3,082
892 892
8,702 6,545
9,692 7,778
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank
(UK) Pension Scheme, which is sponsored by a separate Group
company. HSBC Holdings incurs a charge for these employees equal to
the contributions paid into the scheme on their behalf. Disclosure
in relation to the scheme is made in Note 6.
37 Effects of reclassification upon adoption of IFRS 9
295 HSBC Holdings plc Annual Report and Accounts 2018
Notes on the financial statements
Reconciliation for consolidated balance sheet at 31 December
2017 and 1 January 2018 (continued)
Measurement IFRS 9 reclassification
category(13) to
Fair value Fair value
Carrying
through through other amount
Other changes in
profit and comprehensive Amortised post-
IFRS 9
IAS 39 remeasurement IFRS
carrying including 9 carrying
amount expected amount
at 31 classification loss credit at 1
Dec 2017 income cost reclassification losses(4) Jan 2018
Footnotes $m $m $m $m $m $m $m $m
Liabilities
Hong Kong
currency
notes in Amortised
circulation cost 34,186 - - - -34,186 -34,186
Deposits Amortised
by banks 1 cost 69,922 (5,430) - - -64,492 -64,492
Customer Amortised
accounts 1 cost 1,364,462 (4,235) - - -1,360,227 - 1,360,227
Repurchase
agreements
- Amortised
non-trading cost 130,002 - - - -130,002 -130,002
Items in
the course
of
transmission
to other Amortised
banks cost 6,850 - - - -6,850 -6,850
Trading
liabilities 1, 11 FVPL 184,361 (103,497) - - -80,864 -80,864
Financial
liabilities
designated
at fair 9, 10,
value 11 FVPL 94,429 59,267 - -(9,699) 143,997 9 144,006
Derivatives FVPL 216,821 - - - -216,821 -216,821
Debt
securities Amortised
in issue 10 cost 64,546 - - -2,095 66,641 (105) 66,536
Accruals,
deferred
income and
other Amortised
liabilities 1, 10 cost 45,907 53,895 - -124 99,926 -99,926
Current
tax
liabilities N/A 928 - - - -928 -928
Liabilities
under
insurance
contracts 9 N/A 85,667 - - - -85,667 (69) 85,598
Provisions N/A 4,011 - - - -4,011 284 4,295
Deferred
tax
liabilities 14 N/A 1,982 - - - -1,982 (368) 1,614
Subordinated Amortised
liabilities 10 cost 19,826 - - -7,480 27,306 (1,445) 25,861
Total
liabilities 2,323,900 - - - -2,323,900 (1,694) 2,322,206
For footnotes, see page 299.
297 HSBC Holdings plc Annual Report and Accounts 2018
Reconciliation of impairment allowance under IAS 39 and
provision under IAS 37 to expected credit losses under IFRS 9
Reclassification Remeasurement
to
Fair Fair value
value through
through other comprehensive
profit income Stage 1 &
and loss Stage
$m $m Amortised
cost Stage 3 2
IAS 39 measurement Total
category $m $m $m $m
Financial assets at amortised
cost
IAS 39 impairment allowance
at 31 Dec 2017 7,532
Amortised cost
Cash and balances at (Loans and
central banks receivables) - - - - 3 3
Items in the course of Amortised cost - - - - - -
collection from other (Loans and
banks receivables)
Hong Kong Government Amortised cost - - - - - -
certificates of indebtedness (Loans and
receivables)
Amortised cost
Loans and advances to (Loans and
banks receivables) - - - 1 22 23
Amortised cost
Loans and advances to (Loans and
customers receivables) (31) - - 629 1,261 1,859
Reverse repurchase agreements Amortised cost - - - - - -
- non-trading (Loans and
receivables)
Amortised cost
(Held to
Financial investments maturity) - - 3 - 13 16
Amortised cost
Prepayments, accrued (Loans and
income and other assets receivables) - - - - 47 47
Expected credit loss
allowance at 1 Jan 2018 9,480
Loan commitments and
financial guarantee contracts
IAS 37 provisions at
31 Dec 2017 253
Provisions (loan commitments
and financial guarantees) N/A N/A N/A N/A 74 210 284
Expected credit loss
provision at 1 Jan 2018 537
The pre-tax net asset impact of additional impairment allowances
on adoption of IFRS 9 is $2,232m; $1,948m in respect of financial
assets at amortised cost and $284m related to loan commitments and
financial guarantee contracts. Total expected credit loss allowance
at 1 January 2018 is $9,480m in respect of financial assets at
amortised cost, and $537m related to loan commitments and financial
guarantee contracts.
Effects of reclassification upon adoption of IFRS 9
Carrying Fair value
amount at at 31
31 Dec
Dec 2018 2018
Footnotes $m $m
Reclassified from available-for-sale
to amortised cost
Other financial assets held
at amortised cost 5,781 5,876
Reclassified from fair value
through profit and loss to
amortised cost or fair value
though other comprehensive
income
Debt securities in issue 15 1,939 1,823
Subordinated liabilities 16 5,872 6,635
For footnotes, see page 299.
HSBC Holdings plc Annual Report and Accounts 2018 298
Notes on the financial statements
Footnotes to 'Effect of reclassification upon adoption of IFRS
9'
1 Settlement accounts, cash collateral and margin receivables of
$37,900m have been reclassified from 'Trading assets' to
'Prepayments, accrued income and other assets' as a result of the
assessment of the business model in accordance with IFRS 9.
Settlement accounts, cash collateral and margin receivables
previously presented as 'Loans and advances to banks' of $5,939m
and 'Loans and advances to customers' of $3,976m have been
re-presented in 'Prepayments, accrued income and other assets' to
ensure consistent presentation of all such balances. Settlement
accounts, cash collateral and margin payables previously presented
as 'Trading liabilities' of $44,230m, 'Deposits by banks' of
$5,430m and 'Customer accounts' of $4,235m have been re-presented
in 'Accruals, deferred income and other liabilities'. This change
in presentation for financial liabilities is considered to provide
more relevant information, given the change in presentation for the
financial assets. These changes in presentation for financial
assets and liabilities have had no effect on measurement of these
items and therefore on 'Retained earnings'.
2 'Loans and advances to customers' of $3,903m and 'Loans and
advances to banks' of $712m did not meet the 'solely payments of
principal and interest' ('SPPI') requirement for amortised cost
classification under IFRS 9. As a result, these financial assets
were reclassified to 'Financial assets designated and otherwise
mandatorily measured at fair value through profit or loss'.
3 Stock borrowing assets of $4,642m have been reclassified from
'Loans and advances to banks and customers' to 'Trading assets'.
The change in measurement is a result of the determination of the
global business model for this activity and will align the
presentation throughout the Group.
4 IFRS 9 ECL decreased net assets by $2,232m, principally
comprising of $1,890m reduction in the carrying value of assets
classified as 'Loans and advances to customers' and $284m increase
in 'Provisions' relating to expected credit losses on loan
commitments and financial guarantee contracts.
5 Debt instruments of $3,131m previously classified as
available-for-sale under IAS 39 did not meet the SPPI requirement
for FVOCI classification. As a result, these financial assets were
classified as 'Financial assets designated and otherwise
mandatorily measured at fair value through profit or loss' upon
adoption of IFRS 9. Debt instruments of $7,026m previously
classified as available-for-sale under IAS 39, have been
reclassified to amortised cost as a result of 'hold to collect'
business model classification under IFRS 9. This resulted in a
$441m downward remeasurement of the financial assets now measured
at amortised cost excluding expected credit losses.
6 $2,104m of available-for-sale non-traded equity instruments
have been reclassified as 'Financial assets designated and
otherwise mandatorily measured at fair value through profit or
loss' in accordance with IFRS 9. The Group has elected to apply the
FVOCI option under IFRS 9 for the remaining $1,813m.
7 $214m of other financial assets measured at amortised cost
under IAS 39 did not meet the SPPI requirement for amortised cost
classification under IFRS 9. As a result, these financial assets
were classified as 'Financial assets designated and otherwise
mandatorily measured at fair value through profit or loss'.
8 'Interests in associates and joint ventures' includes the
consequential downward remeasurement of our interests in associates
and joint ventures as a result of these entities applying IFRS 9 of
$942m. The effect of IFRS 9 on the carrying value of investments in
associates has been updated from the estimate disclosed in our
Annual Report and Accounts 2017 as a result of those entities
publicly reporting their expected transition impacts.
9 Changes in the classification and measurement of financial
assets held in our insurance business and the recognition of ECL
under IFRS 9 has resulted in secondary impacts on the present value
of in-force long-term insurance business ('PVIF') and liabilities
to holders of insurance and investment contracts. The gross
carrying value of PVIF reported in 'Goodwill and intangible assets'
and liabilities reported in 'Liabilities under insurance contracts'
has decreased by $79m and $69m respectively. Liabilities reported
under 'Financial liabilities designated at fair value' have
increased by $9m.
10 As permitted by IFRS 9, fair value designations have been
revoked for certain long-dated liabilities where the accounting
mismatch will be better mitigated by undertaking fair value hedge
accounting, resulting in reclassifications of $7,110m from
'Financial liabilities designated at fair value' to 'Subordinated
liabilities' measured at amortised cost and $2,095m from 'Financial
liabilities designated at fair value' to 'Debt securities in issue'
measured at amortised cost. A further $124m of associated accrued
interest has been reclassified to 'Accruals, deferred income and
other liabilities'. In addition, as required by IFRS 9, fair value
designations have been revoked where accounting mismatches no
longer exist, resulting in a further $370m of 'Subordinated
liabilities' being measured at amortised cost. Together, these
changes result in the financial liabilities now being measured at
amortised cost, decreasing 'Debt securities in issue' by $105m and
'Subordinated Liabilities' by $1,445m.
11 We have considered market practices for the presentation of
$59,267m of financial liabilities containing both deposit and
derivative components. We have concluded that a change in
accounting policy and presentation from 'Trading liabilities' would
be appropriate, since it would better align with the presentation
of similar financial instruments by peers and therefore provide
more relevant information about the effect of these financial
liabilities on our financial position and performance. As a result,
rather than being classified as held for trading, we will designate
these financial liabilities as at fair value through profit or loss
since they are managed and their performance evaluated on a fair
value basis. Consequently, changes in fair value of these
instruments attributable to changes in own credit risk are
recognised in other comprehensive income rather than profit or
loss. For 2017, a restatement would have increased 'Net income from
financial instruments held for trading or managed on a fair value
basis' by $545m and increased tax expense by $168m, with an
equivalent net decrease in other comprehensive income.
12 While IFRS 9 ECL has no effect on the carrying value of FVOCI
financial assets, which remain measured at fair value, the adoption
of IFRS 9 results in a transfer from the FVOCI reserve (formerly
AFS reserve) to retained earnings to reflect the cumulative
impairment recognised in profit or loss in accordance with IFRS 9
(net of impairment losses previously recognised in profit or loss
under IAS 39). The amount transferred from 'Other reserves' to
'Retained earnings' was $61m. The resulting cumulative expected
credit losses recognised in 'Retained earnings' on financial assets
measured at FVOCI on adoption of IFRS 9 is $184m. In addition, the
cumulative AFS reserve relating to financial investments
reclassified to 'Financial assets designated and otherwise
mandatorily measured at fair value through profit or loss' in
accordance with IFRS 9 has been transferred to retained
earnings.
13 Measurement refers to that under IAS 39 and IFRS 9. Financial
investments measured under fair value through other comprehensive
income were measured as available-for-sale instruments under IAS
39.
14 The effect of IFRS 9 remeasurement has been updated from the estimate disclosed
in our Annual Report and Accounts 2017 as a result of our
associates publicly reporting their transition impacts.
15 The effective interest rate on the issued debt security
reclassified at 1 January 2018 was 4.05%.
16 Effective interest rate on subordinated liabilities
reclassified at 1 January 2018 were 3.16%, 5.34%, 6.57% and
7.69%.
299 HSBC Holdings plc Annual Report and Accounts 2018
Reconciliation of HSBC Holdings balance sheet at 31 December
2017 and 1 January 2018
IFRS 9
reclassification
to
Fair value
through
Other Fair value other
IAS 39 carrying through compre-
changes in
amount at profit and hensive IFRS
classifi- Amorti- 9 remeasur-
loss income sed ment IFRS
cost including 9 carrying
Carrying expected amount
IAS 39 IFRS 9 31 Dec 2017 amount credit at 1
measurement measurement cation post-reclassifi-cation losses Jan 2018
Footnotes category category $m $m $m $m $m $m $m $m
Assets
Cash and
balances
with HSBC Amortised Amortised
undertakings cost cost 1,985 - - - - 1,985 - 1,985
Financial
assets
designated
and
otherwise
mandatorily
measured
at fair
value
through
profit
or loss 1 FVPL FVPL 11,944 - 4,264 - - 16,208 - 16,208
Derivatives FVPL FVPL 2,388 - - - - 2,388 - 2,388
Loans and
advances
to HSBC Amortised Amortised
undertakings cost cost 76,627 - - - - 76,627 - 76,627
FVOCI
(Available
for sale
Financial - debt
investments 1 instruments) FVPL 4,264 - (4,264) - - - - -
FVOCI
(Available
for sale
- equity
instruments) FVOCI - - - - - - - -
Amortised
cost (Debt
instruments
held to Amortised
maturity) cost - - - - - - - -
Prepayments,
accrued
income
and
intangible Amortised Amortised
assets cost cost 662 - - - - 662 - 662
Current tax
assets N/A N/A 379 - - - - 379 - 379
Investment
in
subsidiaries N/A N/A 92,930 - - - - 92,930 - 92,930
Deferred
tax assets N/A N/A 555 - - - - 555 (175) 380
Total assets 191,734 - - - - 191,734 (175) 191,559
IAS 39 IFRS 9 reclassification amount
measurement to $m
category cost
post-reclassification
Fair value Fair value
IAS 39 carrying through
through other
amount at Other changes
in profit and comprehensive
IFRS 9
remeasurement IFRS
including 9 carrying
expected amount
31 Dec 2017 classification Amortised credit at 1
loss income Carrying losses Jan 2018
Footnotes $m $m $m $m $m $m $m
Liabilities
Amount
owed to
HSBC Amortised
undertakings cost 2,571 - - - - 2,571 - 2,571
Financial
liabilities
designated
at fair
value 2 FVPL 30,890 - - - (5,402) 25,488 - 25,488
Amortised
Derivatives cost 3,082 - - - - 3,082 - 3,082
Debt
securities Amortised
in issue cost 34,258 - - - - 34,258 - 34,258
Accruals,
deferred
income
and other Amortised
liabilities 2 cost 1,269 - - - 75 1,344 - 1,344
Subordinated Amortised
liabilities 2 cost 15,877 - - - 5,327 21,204 (1,065) 20,139
Total
liabilities 87,947 - - - - 87,947 (1,065) 86,882
HSBC Holdings plc Annual Report and Accounts 2018 300
Notes on the financial statements
Reconciliation for HSBC Holdings balance sheet at 31 December
2017 and 1 January 2018 (continued)
1 $4,264 of available-for-sale assets have been reclassified as
'Financial assets designated and otherwise mandatorily measured at
fair value through profit or loss' in accordance with IFRS 9.
2 As permitted by IFRS 9, fair value designations have been
revoked for certain long-dated liabilities where the accounting
mismatch will be better mitigated by undertaking fair value hedge
accounting, resulting in reclassifications of $5,402m from
'Financial liabilities designated at fair value' to 'Subordinated
liabilities' measured at amortised cost.
38 Events after the balance sheet date
In its assessment of events after the balance sheet date, HSBC
considered, among others, the events related to the process of the
UK's withdrawal from the European Union that occurred between 31
December 2018 and the date when the financial statements were
authorised for issue, and concluded that no adjustments to the
financial statements were required.
A fourth interim dividend for 2018 of $0.21 per ordinary share
(a distribution of approximately $4,205m) was declared by the
Directors after 31 December 2018. These accounts were approved by
the Board of Directors on 19 February 2019 and authorised for
issue.
39 HSBC Holdings' subsidiaries, joint ventures and associates
In accordance with section 409 of the Companies Act 2006 a list
of HSBC Holdings plc subsidiaries, joint ventures and associates,
the registered office address and the effective percentage of
equity owned at 31 December 2018 are disclosed below.
Unless otherwise stated, the share capital comprises ordinary or
common shares that are held by Group subsidiaries. The ownership
percentage is provided for each undertaking. The undertakings below
are consolidated by HSBC unless otherwise indicated.
Subsidiaries
301 HSBC Holdings plc Annual Report and Accounts 2018
% of share % of share
class held class held
by by
immediate immediate
parent parent
company company
(or by the (or by the
Subsidiaries Group where Footnotes Subsidiaries Group where Footnotes
this varies) this varies)
ACN 087 652 113 Pty Eton Corporate Services
Limited (in liquidation) 100.00 15 Limited 100.00 22
Almacenadora Banpacifico Far East Leasing SA (in
S.A. (in liquidation) 99.99 18 liquidation) 100.00 44
Assetfinance December
(F) Limited 100.00 19 Fdm 5 SAS 100.00 (99.99) 4, 41
Assetfinance December FEPC Leasing Ltd. (in
(H) Limited 100.00 19 liquidation) 100.00 3, 45
Assetfinance December
(M) Limited 100.00 19 Finanpar 2 100.00 (99.99) 4, 43
Assetfinance December
(P) Limited 100.00 19 Finanpar 7 100.00 (99.99) 4, 43
Assetfinance December Flandres Contentieux 1, 4,
(R) Limited 100.00 19 S.A. 100.00 (99.99) 45
Assetfinance June (A)
Limited 100.00 19 Foncière Elysées 100.00 (99.99) 4, 42
Assetfinance June (D)
Limited 100.00 19
Forward Trust Rail Services
Assetfinance Limited 100.00 19 Limited (in liquidation) 100.00 19
Assetfinance March (B)
Limited 100.00 20
Assetfinance March (D) Fujian Yongan HSBC Rural 12,
Limited 100.00 19 Bank Company Limited 100.00 47
Assetfinance March (F) Fulcher Enterprises Company
Limited 100.00 19 Limited 100.00 (62.14) 48
Assetfinance September 1, 11,
(F) Limited 100.00 19 Fundacion HSBC, A.C. 99.99 18
Assetfinance September
(G) Limited 100.00 19 Giller Ltd. 100.00 27
B&Q Financial Services Global Payments Technology
Limited 100.00 21 Mexico 18
Banco Nominees (Guernsey)
Limited 100.00 22 S.A. De C.V. 100.00 (99.99)
Banco Nominees 2 (Guernsey)
Limited 100.00 22 GPIF Co-Investment, LLC n/a 7, 29
Griffin International
Banco Nominees Limited 100.00 23 Limited 100.00 19
Bank of Bermuda (Cayman) Grundstuecksgesellschaft
Limited 100.00 24 Trinkausstrasse 7, 50
Kommanditgesellschaft n/a
Beau Soleil Limited
Partnership n/a 7, 25
Grupo Financiero HSBC,
S. A. de C. V. 99.99 18
12,
25
Beijing Miyun HSBC Rural 12,
Bank Company Limited 100.00 51
Guangdong Enping HSBC
Rural Bank Company Limited 100.00
Billingsgate Nominees
Limited 100.00 19
Hang Seng (Nominee) Limited 100.00 (62.14) 48
Canada Crescent Nominees
(UK) Limited 100.00 19
Hang Seng Bank (China) 12,
Limited 100.00 (62.14) 54
Canada Square Nominees
(UK) Limited 100.00 19
Hang Seng Bank (Trustee)
Limited 100.00 (62.14) 48
Canada Water Nominees
(UK) Limited (in liquidation) 100.00 19 Hang Seng Bank Limited 62.14 48
Hang Seng Bullion Company
Capco/Cove, Inc. 100.00 27 Limited 100.00 (62.14) 48
Card-Flo #1, Inc. 100.00 28 Hang Seng Credit Limited 100.00 (62.14) 48
Hang Seng Data Services
Card-Flo #3, Inc. 100.00 29 Limited 100.00 (62.14) 48
CC&H Holdings LLC n/a 7, 30 Hang Seng Finance Limited 100.00 (62.14) 48
Hang Seng Financial
CCF & Partners Asset Information
Management Limited 99.99 19 Limited 100.00 (62.14) 48
Hang Seng Futures Limited
(in liquidation) 100.00 (62.14) 48
CCF Charterhouse GmbH
& Co Asset Leasing KG Hang Seng Indexes Company
(in liquidation) n/a 7, 31 Limited 100.00 (62.14) 48
CCF Charterhouse GmbH Hang Seng Insurance Company
(in liquidation) 100.00 (99.99) 4, 31 Limited 100.00 (62.14) 48
CCF Holding (LIBAN) Hang Seng Investment
S.A.L. (in liquidation) 74.99 1, 32 Management Limited 100.00 (62.14) 48
Charterhouse Administrators Hang Seng Investment
(D.T.) Limited 100.00 (99.99) 19 Services Limited 100.00 (62.14) 48
Hang Seng Life Limited 100.00 (62.14) 48
Charterhouse Development Hang Seng Real Estate
Limited (in liquidation) 100.00 35 Management Limited 100.00 (62.14) 48
Charterhouse Management Hang Seng Securities
Services Limited 100.00 (99.99) 19 Limited 100.00 (62.14) 48
Charterhouse Pensions Hang Seng Security Management
Limited 100.00 19 Limited 100.00 (62.14) 48
Hang Seng Qianhai Fund
Management Company
Chongqing Dazu HSBC 12, 12,
Rural Bank Company Limited 100.00 33 Limited 70.00 (43.49) 189
Haseba Investment Company
Limited 100.00 (62.14) 48
Chongqing Fengdu HSBC 12, HFC Bank Limited (in
Rural Bank Company Limited 100.00 34 liquidation) 100.00 35
Chongqing Rongchang 12, Hg Janus A Co-Invest
HSBC Rural Bank Company 35 L.P. n/a 7, 210
High Time Investments
Limited 100.00 Limited 100.00 (62.14) 48
CL Residential Limited
(in liquidation) 100.00 35 HITG Administration GmbH 100.00 55
Honey Green Enterprises
COIF Nominees Limited n/a 7, 19 Ltd. 100.00 55
Hongkong International
Cordico Management AG 100.00 37 Trade Finance (Holdings)
Corhold Limited 100.00 38 Limited (in liquidation) 100.00 19
Corsair IV Financial Household Capital Markets
Services Capital Partners n/a 7, 49 LLC n/a 7, 29
Household Finance Corporation
III 100.00 29
Dalian Pulandian HSBC 12, Household International
Rural Bank Company Limited 100.00 39 Europe Limited (in
Decision One Mortgage
Company, LLC n/a 7, 40 liquidation) 100.00 3, 35
Dem 5 100.00 (99.99) 4, 41 Household Pooling Corporation 100.00 58
Dem 9 100.00 (99.99) 4, 41 HRMG Nominees Limited 100.00 22
HSBC (BGF) Investments
Dempar 1 100.00 (99.99) 4, 42 Limited 100.00 19
HSBC (General Partner)
Dempar 4 100.00 (99.99) 4, 42 Limited 100.00 2, 50
Desarrollo Turistico, HSBC (Guernsey) GP PCC
S.A. de C.V. (in liquidation) 99.99 18 Limited 100.00 22
11, HSBC (Kuala Lumpur) Nominees
Elysees GmbH (in liquidation) 100.00 (99.99) 31 Sdn Bhd 100.00 51
HSBC (Malaysia) Trustee
Elysées Immo Invest 100.00 (99.99) 4, 43 Berhad 100.00 52
Equator Holdings Limited HSBC (Singapore) Nominees
(in liquidation) 100.00 19 Pte Ltd 100.00 53
HSBC Administradora de
Inversiones S.A. 100.00 (99.65) 54
HSBC Agency (India) Private
Limited 100.00 55
7, 55
HSBC Alpha Funding (UK) n/a
Holdings LP (in liquidation)
HSBC Holdings plc Annual Report and Accounts 2018 302
Notes on the financial statements
% of share % of share
class held class held
by by
immediate immediate
parent parent
company (or company (or
by the Group by the Group
where this where this
Subsidiaries varies) Footnotes Subsidiaries varies) Footnotes
HSBC Alternative Investments HSBC Client Holdings
Limited 100.00 19 Nominee (UK) Limited 100.00 19
HSBC Amana h Malaysia HSBC Client Share Offer
Berhad 100.00 61 Nominee (UK) Limited 100.00 19
HSBC Amana h Takaful HSBC Columbia Funding,
(Malaysia) Berhad 49.00 9, 61 LLC n/a 7, 29
HSBC Americas Corporation HSBC Corporate Advisory
(Delaware) 100.00 29 (Malaysia) Sdn Bhd 100.00 61
HSBC Argentina Holdings HSBC Corporate Finance
S.A. 100.00 67 (Hong Kong) Limited 100.00 68
HSBC Asia Holdings (UK) HSBC Corporate Trustee
Limited 100.00 19 Company (UK) Limited 19
HSBC Asia Holdings B.V. 100.00 3, 19 100.00
HSBC Custody Nominees
HSBC Asia Holdings Limited 100.00 2, 68 (Australia) Limited 100.00 16
HSBC Asia Pacific Holdings HSBC Custody Services
(UK) Limited 100.00 5, 19 (Guernsey) Limited 100.00 22
HSBC Asset Finance (UK) HSBC Daisy Investments
Limited 100.00 19 (Mauritius) Limited 100.00 94
HSBC Diversified Loan
HSBC Asset Finance Holdings Fund General Partner
Limited (in liquidation) 100.00 19 Sarl 7, 95
(n/a) 19 HSBC Electronic
HSBC Asset Finance M.O.G. Data Processing (Guangdong)
Holdings (UK) Limited 100.00 Limited 100.00 12, 96
HSBC Electronic Data
HSBC Asset Management Processing (Malaysia)
(India) Private Limited 100.00 (99.99) 3, 69 Sdn Bhd 100.00 97
HSBC Electronic Data
HSBC Assurances Vie Processing (Philippines),
(France) 100.00 (99.99) 4, 46 Inc. 98
HSBC Australia Holdings 3, 5,
Pty Limited 100.00 16 99.99
HSBC Electronic Data
Processing India Private
HSBC Bank (Chile) 100.00 70 Limited 100.00 99
HSBC Bank (China) Company 12,
Limited 100.00 71
HSBC Electronic Data
HSBC Bank (General Partner) Processing Lanka (Private)
Limited 100.00 60 Limited 100.00(100)
HSBC Bank (Mauritius)
Limited 100.00 72
HSBC Electronic Data
HSBC Bank (RR) (Limited 13, Service Delivery (Egypt)
Liability Company) 100.00 73 S.A.E. 101
100.00
HSBC Bank (Singapore)
Limited 100.00 63
HSBC Enterprise Investment
HSBC Bank (Taiwan) Limited 100.00 74 Company (UK) Limited 19
100.00
HSBC Bank (Uruguay)
S.A. 100.00 75
HSBC Epargne Entreprise
(France) 100.00 (99.99) 4, 46
HSBC Bank (Vietnam)
Ltd. 100.00 76
HSBC Equator (UK) Limited
(in liquidation) 100.00 19
HSBC Bank A.S. 100.00 77
HSBC Equipment Finance
(UK) Limited 100.00 19
HSBC Bank Argentina
S.A. 100.00 (99.99) 67
HSBC Equity (UK) Limited 100.00 19
HSBC Bank Armenia cjsc 70.00 78
HSBC Europe B.V. 100.00 19
HSBC Bank Australia
Limited 100.00 16
HSBC Executor & Trustee
HSBC Bank Bermuda Limited 100.00 23 Company (UK) Limited 100.00 19
HSBC Bank Canada 100.00 3, 79 HSBC Factoring (France) 100.00 (99.99) 4, 42
HSBC Bank Capital Funding HSBC Finance (Brunei)
(Sterling 1) LP n/a 7, 60 Berhad 100.00 102
HSBC Bank Capital Funding
(Sterling 2) LP n/a 7, 60 HSBC Finance (Netherlands) 100.00 2, 19
HSBC Bank Egypt S.A.E 94.54 80 HSBC Finance Corporation 100.00 29
HSBC Bank Malaysia Berhad 100.00 61 HSBC Finance Limited 100.00 19
HSBC Finance Mortgages
HSBC Bank Malta p.l.c. 70.03 81 Inc. 100.00 103
HSBC Bank Middle East HSBC Finance Transformation
Limited 100.00 5, 82 (UK) Limited 100.00 2, 19
HSBC Bank Middle East
Limited, Representative HSBC Financial Services
Office Morocco SARL 100.00 83 (Lebanon) s.a.l. 99.60 104
HSBC Financial Services
HSBC Bank Nominee (Jersey) (Middle East) Limited
Limited 100.00 85 (in liquidation) 100.00 105
HSBC Bank Oman S.A.O.G. 51.00 86 106
HSBC Financial Services
HSBC Bank Pension Trust (Uruguay) S.A. (in
(UK) Limited 100.00 19 liquidation) 100.00
HSBC Bank plc 100.00 3, 19 HSBC France 99.99 4, 42
HSBC Fund Services (Korea)
HSBC Bank Polska S.A. 100.00 3, 87 Limited 92.95 108
HSBC Funding (UK) Holdings
HSBC Bank USA, National (active proposal to
Association 100.00 3, 88 strike off) 19
HSBC Branch Nominee
(UK) Limited 100.00 19 100.00
HSBC Brasil Holding HSBC Germany Holdings
S.A. 100.00 89 GmbH 100.00 50
HSBC Brasil S.A. Banco HSBC Global Asset Management
De Investimento 100.00 89 (Bermuda) Limited 100.00 3, 23
HSBC Broking Forex (Asia)
Limited 100.00 68
HSBC Broking Futures HSBC Global Asset Management
(Asia) Limited 100.00 68 (Canada) Limited 100.00 79
HSBC Broking Futures
(Hong Kong) Limited 100.00 68
HSBC Broking Securities HSBC Global Asset Management
(Asia) Limited 100.00 68 (Deutschland) GmbH 50
100.00 (80.67)
HSBC Broking Securities
(Hong Kong) Limited 100.00 68
HSBC Global Asset Management
(France) 100.00 (99.99) 4, 110
HSBC Broking Services
(Asia) Limited 100.00 68
HSBC Global Asset Management
(Hong Kong) Limited 100.00 25
HSBC Canadian Covered
Bond (Legislative) GP
Inc 100.00 90
HSBC Global Asset Management
(International) Limited
(in liquidation) 100.00 111
HSBC Canadian Covered
Bond (Legislative) Guarantor
Limited Partnership n/a 7, 90
HSBC Global Asset Management
(Japan) K. K. 100.00 112
HSBC Capital (USA),
Inc. 100.00 29
HSBC Capital Funding HSBC Global Asset Management
(Dollar 1) L.P. n/a 7, 60 (Malta) Limited 113
100.00 (70.03)
HSBC Capital Limited 100.00 68
HSBC Global Asset Management
(Mexico), S.A. de C.V.,
Sociedad Operadora de
Fondos de Inversión,
HSBC Card Services Inc. 100.00 29 Grupo Financiero HSBC 18
99.99
HSBC Casa de Bolsa,
S.A. de C.V., Grupo
Financiero HSBC 99.99 18
HSBC Cayman Services HSBC Global Asset Management
Limited 100.00 92 (Oesterreich) GmbH 100.00 (80.67) 6, 114
HSBC City Funding Holdings 100.00 19
303 HSBC Holdings plc Annual Report and Accounts 2018
% of share % of share
class held class held
by by
immediate immediate
parent parent
company company
(or by the (or by the
Subsidiaries Group where Footnotes Subsidiaries Group where Footnotes
this varies) this varies)
63 3, 133
HSBC Global Asset Management 100.00 HSBC InvestDirect Securities 99.99 (99.61)
(Singapore) Limited (India) Private Limited
HSBC Investment Bank
Holdings B.V. 100.00 19
HSBC Global Asset Management HSBC Investment Bank
(Switzerland) AG 100.00 (90.33) 4, 115 Holdings Limited 100.00 19
HSBC Investment Company
(Egypt) S.A.E (in
HSBC Global Asset Management
(Taiwan) Limited 100.00 116 liquidation) 100.00 (94.54) 1, 134
HSBC Global Asset Management HSBC Investment Funds
(UK) Limited 100.00 19 (Canada) Inc. 100.00 5, 135
HSBC Global Asset Management HSBC Investment Funds
(USA) Inc. 100.00 117 (Hong Kong) Limited 100.00 25
HSBC Global Asset Management HSBC Investment Funds
Holdings (Bahamas) (Luxembourg) SA 100.00 136
HSBC Invoice Finance
Limited 100.00 118 (UK) Limited 100.00 138
HSBC Global Asset Management
Limited 100.00 2, 19
HSBC Iris Investments
HSBC Global Custody (Mauritius) Ltd (in
Nominee (UK) Limited 100.00 19 liquidation) 100.00 139
HSBC Global Custody HSBC Issuer Services
Proprietary Nominee Common Depositary Nominee
(UK)
Limited 100.00 19 (UK) Limited 100.00 19
HSBC Global Services
(Canada) Limited 100.00 3, 119
HSBC Issuer Services
HSBC Global Services Depositary Nominee (UK)
(China) Holdings Limited 100.00 19 Limited 100.00 19
HSBC Global Services
(Hong Kong) Limited 100.00 68 HSBC Latin America B.V. 100.00 19
HSBC Global Services HSBC Latin America Holdings
(UK) Limited 100.00 19 (UK) Limited 100.00 2, 19
HSBC Global Services
Limited 100.00 2, 19 HSBC Leasing (Asia) Limited 100.00 68
HSBC Global Shared Services
(India) Private Limited
(in HSBC Leasing (France) 100.00 (99.99) 4, 41
HSBC Life (International)
liquidation) 100.00 (99.99) 65 Limited 100.00 23
HSBC Group Management HSBC Life (Property)
Services Limited 100.00 19 Limited 100.00 124
HSBC Group Nominees 1, 2,
UK Limited 100.00 19 HSBC Life (UK) Limited 100.00 19
HSBC Life Assurance (Malta)
HSBC Holdings B.V. 100.00 3, 19 Limited 100.00 (70.03) 113
HSBC IM Pension Trust HSBC Life Insurance Company
Limited 100.00 1, 19 Limited 50.00 140
HSBC Infrastructure
Limited 100.00 19
HSBC Lodge Funding (UK)
Holdings (active proposal
to 19
HSBC INKA Investment-AG 14,
TGV 100.00 (80.67) 120 strike off) 100.00
HSBC Inmobiliaria (Mexico),
S.A. de C.V. 100.00 18 HSBC LU Nominees Limited 100.00 19
HSBC Institutional Trust HSBC Management (Guernsey)
Services (Asia) Limited 100.00 68 Limited 100.00 22
HSBC Markets (USA) Inc. 100.00 29
HSBC Institutional Trust HSBC Marking Name Nominee
Services (Bermuda) Limited 100.00 23 (UK) Limited 100.00 19
HSBC Institutional Trust 100.00 (99.99) 121 HSBC Mexico, S.A., Institucion
Services (Ireland) DAC de Banca Multiple,
Grupo Financiero HSBC 100.00 (99.99) 18
HSBC Institutional Trust
Services (Mauritius) HSBC Middle East Finance
Limited 100.00 122 Company Limited 80.00 141
HSBC Middle East Holdings 2, 3,
63 B.V. 100.00 82
HSBC Institutional Trust
Services (Singapore) HSBC Middle East Leasing
Limited 100.00 Partnership n/a 7, 142
HSBC Insurance (Asia) HSBC Middle East Securities
Limited 100.00 124 L.L.C 49.00 9, 143
HSBC Mortgage Corporation
5, 125 (Canada) 100.00 144
HSBC Insurance (Asia-Pacific)
Holdings Limited 100.00
HSBC Mortgage Corporation
(USA) 100.00 29
HSBC Insurance (Bermuda)
Limited 100.00 23
HSBC Nominees (Asing)
Sdn Bhd 100.00 61
HSBC Insurance (Singapore)
Pte. Limited 100.00 63
HSBC Nominees (Hong Kong)
Limited 100.00 68
HSBC Insurance Agency
(USA) Inc. 100.00 117
HSBC Nominees (New Zealand)
Limited 100.00 145
HSBC Insurance Brokers
(Philippines) Inc 100.00 (99.99) 127
HSBC Nominees (Tempatan)
Sdn Bhd 100.00 61
HSBC Insurance Holdings
Limited 100.00 2, 19
HSBC North America Holdings
Inc. 100.00 0, 29
HSBC Insurance Management
Services Limited (in
HSBC Odeme Sistemleri
Bilgisayar Teknolojileri
Basin
liquidation) 100.00 128
Yayin Ve Musteri Hizmetleri 99.99 146
HSBC Insurance Services
(Lebanon) S.A.L. (in
HSBC Operational Services
GmbH n/a 7, 147
liquidation) 97.70 129
HSBC Overseas Holdings
(UK) Limited 100.00 2, 19
HSBC Insurance Services
Holdings Limited 100.00 19
149
HSBC International Finance HSBC Overseas Investments
Corporation (Delaware) 100.00 130 Corporation (New York) 100.00
HSBC Overseas Nominee
(UK) Limited 100.00 19
HSBC International Holdings
(Jersey) Limited (in
HSBC Participaciones
(Argentina) S.A. 100.00 (99.99) 67
liquidation) 100.00 85
HSBC PB Corporate Services
1 Limited 100.00 150
HSBC International Limited
(in liquidation) 100.00 85
HSBC PB Services (Suisse)
SA 100.00 151
HSBC International Nominees HSBC Pension Trust (Ireland)
Limited (in liquidation) 100.00 1, 131 DAC 100.00 121
HSBC International Trustee 10,
(BVI) Limited 100.00 132 HSBC Pensiones, S.A. 99.99 152
HSBC PI Holdings (Mauritius)
Limited 100.00 122
HSBC International Trustee HSBC Portfoy Yonetimi
(Holdings) Pte. Limited 100.00 63 A.S. 100.00 (99.98) 153
HSBC International Trustee HSBC Preferential LP
Limited 100.00 131 (UK) 100.00 19
HSBC Private Bank (C.I.)
HSBC Inversiones S.A. 99.99 70 Limited 100.00 22
HSBC Inversiones y Servicios
Financieros Limitada HSBC Private Bank (Luxembourg)
(in S.A. 100.00 136
HSBC Private Bank (Monaco)
liquidation) 100.00 (99.99) 70 SA 99.99 3, 155
HSBC InvestDirect (India) HSBC Private Bank (Suisse)
Limited 99.99 (99.54) 133 SA 100.00 151
HSBC Private Bank (UK)
Limited 100.00 19
HSBC InvestDirect Financial HSBC Private Bank
Services (India) Limited 100.00 (99.54) 133 International 100.00 156
HSBC Private Banking
Holdings (Suisse) SA 100.00 151
HSBC InvestDirect Sales
& Marketing (India)
Limited 99.99 (98.54) 65
HSBC Private Banking
Nominee 3 (Jersey) Limited 100.00 150
HSBC Holdings plc Annual Report and Accounts 2018 304
Notes on the financial statements
% of share % of share
class held class held
by by
immediate immediate
parent parent
company company
(or by the (or by the
Subsidiaries Group where Footnotes Subsidiaries Group where Footnotes
this varies) this varies)
HSBC Private Equity n/a 7, 29 HSBC Trinkaus & Burkhardt
Advisors LLC Gesellschaft fur
HSBC Private Equity
Investments (UK) Limited 100.00 19 Bankbeteiligungen mbH 100.00 (80.67) 50
HSBC Private Trustee
(Hong Kong) Limited 100.00 68
HSBC Trinkaus Europa
HSBC Private Wealth Immobilien-Fonds Nr.
Services (Canada) Inc. 100.00 3, 157 5 GmbH 100.00 (80.67) 50
HSBC Trinkaus Family
Office GmbH 100.00 (80.67) 6, 50
HSBC Professional Services HSBC Trinkaus Immobilien
(India) Private Limited 98.61 65 Beteiligungs KG 100.00 (80.67) 50
HSBC Property (UK) HSBC Trinkaus Real Estate
Limited 100.00 19 GmbH 100.00 (80.67) 6, 50
HSBC Property Funds
(Holding) Limited 100.00 19 HSBC Trust Company (Canada) 100.00 144
HSBC Provident Fund
Trustee (Hong Kong) HSBC Trust Company (Delaware),
Limited 100.00 68 National Association 100.00 175
HSBC Qianhai Securities 12, HSBC Trust Company (UK)
Limited 100.00 (51.00) 158 Limited 100.00 19
HSBC Rail (UK) Limited
(in liquidation) 100.00 19 HSBC Trust Company AG 100.00 37
HSBC Real Estate Leasing
(France) 99.00 4, 46 HSBC Trustee (C.I.) Limited 100.00 150
HSBC Realty Credit HSBC Trustee (Cayman)
Corporation (USA) 100.00 3, 29 Limited 100.00 176
HSBC Trustee (Guernsey)
HSBC REIM (France) 100.00 (99.99) 4, 46 Limited 100.00 22
HSBC Representative HSBC Trustee (Hong Kong)
Office (Nigeria) Limited 100.00 159 Limited 100.00 68
HSBC Retirement Benefits 1, 2,
Trustee (UK) Limited 100.00 19
HSBC Retirement Services HSBC Trustee (Mauritius)
Limited 100.00 1, 19 Limited (in liquidation) 100.00 177
HSBC Savings Bank
(Philippines) HSBC Trustee (Singapore)
Inc. 99.99 161 Limited 100.00 63
HSBC Securities (Asia)
Limited 100.00 68 HSBC UK Bank plc 100.00 178
HSBC Securities (Canada) HSBC UK Client Nominee
Inc. 100.00 119 Limited 100.00 19
HSBC Securities (Egypt)
S.A.E. 100.00 (94.54) 80 HSBC UK Holdings Limited 100.00 2, 19
HSBC Securities (Japan)
Limited 100.00 19 HSBC USA Inc. 100.00 3, 149
HSBC Securities (Philippines) HSBC Violet Investments
Inc. 99.99 1, 162 (Mauritius) Limited 100.00 94
HSBC Securities (Singapore) HSBC Wealth Client Nominee
Pte Limited 100.00 63 Limited 100.00 19
HSBC Securities (South HSBC Yatirim Menkul Degerler
Africa) (Pty) Limited 100.00 163 A.S. 99.98 153
HSBC Securities (Taiwan) HSI Asset Securitization
Corporation Limited 100.00 164 Corporation 100.00 29
HSBC Securities (USA)
Inc. 100.00 29 HSI International Limited 100.00 (62.14) 48
HSBC Securities and
Capital Markets (India)
Private HSIL Investments Limited 100.00 19
Limited 99.99 5, 65
Hubei Macheng HSBC Rural
Bank Company Limited 100.00 12, 182
HSBC Securities Asia
International Nominees Hubei Suizhou Cengdu
Limited 100.00 165 HSBC Rural Bank Company
HSBC Securities Asia
Nominees Limited 100.00 68 Limited 100.00 12, 183
HSBC Securities Brokers
(Asia) Limited 100.00 68 12, 184
HSBC Securities Investments Hubei Tianmen HSBC Rural
(Asia) Limited 100.00 68 Bank Company Limited 100.00
HSBC Securities Services
(Bermuda) Limited 100.00 23 12, 185
Hunan Pingjiang HSBC
Rural Bank Company Limited 100.00
HSBC Securities Services
(Guernsey) Limited 100.00 22
Imenson Limited 100.00 (62.14) 48
HSBC Securities Services
(Ireland) DAC 100.00 121
InfraRed NF China Real
Estate Investments LP n/a 7, 53
HSBC Securities Services
(Luxembourg) S.A. 100.00 136
174
HSBC Securities Services
Holding Limited 100.00 131
INKA Internationale Ka 100.00 (80.67)
pita lanlagegesellschaft
mbH
HSBC Securities Services
Holdings (Ireland) Inmobiliaria Banci, S.A.
DAC 100.00 121 de C.V. 100.00 (98.91) 18
Inmobiliaria Bisa, S.A.
de C.V. 100.00 (99.99) 18
HSBC Seguros de Retiro
(Argentina) S.A. 100.00 (99.99) 67
Inmobiliaria Grufin,
S.A. de C.V. 100.00 (99.99) 18
HSBC Seguros de Vida
(Argentina) S.A. 100.00 (99.99) 67
Inmobiliaria Guatusi,
S.A. de C.V. 100.00 (99.99) 18
HSBC Seguros, S.A de IRERE Property Investments
C.V., Grupo Financiero (French Offices) Sarl
HSBC 99.99 3, 152 (in 186
liquidation) 100.00
HSBC Service Delivery
(Polska) Sp. z o.o. 100.00 167
James Capel & Co. Limited 100.00 19
James Capel (Channel
Islands) Nominees Limited
HSBC Services (France) 99.99 4, 42 (in
HSBC Services Japan
Limited 100.00 168 liquidation) 100.00 111
James Capel (Nominees)
HSBC Services USA Inc. 100.00 169 Limited 100.00 19
HSBC Servicios Financieros, James Capel (Second Nominees)
S.A. de C.V 99.99 18 Limited (in 36
liquidation) 100.00
HSBC Servicios, S.A.
DE C.V., Grupo Financiero James Capel (Taiwan)
HSBC 99.99 18 Nominees Limited 100.00 19
HSBC SFH (France) 99.99 4, 46 Jasmine22 Limited 100.00 187
HSBC Software Development John Lewis Financial
(Canada) Inc 100.00 170 Services Limited 100.00 19
Keyser Ullmann Limited 100.00 (99.99) 19
HSBC Software Development 12,
(Guangdong) Limited 100.00 171
Kings Meadow Nominees
Limited (in liquidation) 100.00 188
HSBC Software Development Legend Estates Limited
(India) Private Limited 100.00 172 (in liquidation) 100.00 19
Lion Corporate Services
Limited 100.00 68
HSBC Software Development Lion International Corporate
(Malaysia) Sdn Bhd 100.00 97 Services Limited 100.00 131
HSBC Specialist Investments Lion International Management
Limited 100.00 5, 19 Limited 100.00 131
HSBC Stockbrokers Nominee Lion Management (Hong
(UK) Limited 100.00 19 Kong) Limited 100.00 68
HSBC Technology & Services 12,
(China) Limited 100.00 173 Lyndholme Limited 100.00 68
HSBC Technology & Services Marks and Spencer Financial
(USA) Inc. 100.00 29 Services plc 100.00 188
HSBC Transaction Services 100.00 (80.67) 6, 174 Marks and Spencer Retail
GmbH Financial Services Holdings
HSBC Trinkaus & Burkhardt
(International) S.A. 100.00 (80.67) 136 Limited (in liquidation) 100.00 188
HSBC Trinkaus & Burkhardt 14,
AG 80.67 50
305 HSBC Holdings plc Annual Report and Accounts 2018
% of share % of share
class held class held
by by
immediate immediate
parent parent
company company
(or by the (or by the
Subsidiaries Group where Footnotes Subsidiaries Group where Footnotes
this varies) this varies)
The Hongkong and Shanghai
Banking Corporation
Marks and Spencer Savings
and Investments Limited 100.00 188 Limited 100.00 68
The Venture Catalysts
Limited 100.00 19
Marks and Spencer Unit Timberlink Settlement
Trust Management Limited 100.00 188 Services (USA) Inc. 100.00 29
Maxima S.A. AFJP (in 1, 2,
liquidation) 100.00 (99.98) 67 Tooley Street View Limited 100.00 19
Mercantile Company
Limited 100.00 19 Tower Investment Management 100.00 207
Trinkaus Australien
Mexicana de Fomento, Immobilien Fonds Nr.
S.A. de C.V. 99.90 18 1 Brisbane
Midcorp Limited 100.00 19 GmbH & Co. KG 100.00 (80.67) 50
Trinkaus Australien
Midland Bank (Branch Immobilien-Fonds Nr.
Nominees) Limited 100.00 19 1 Treuhand-
Midland Nominees Limited 100.00 19 GmbH 100.00 (80.67) 6, 50
Trinkaus Europa
Immobilien-Fonds
MIL (Cayman) Limited 100.00 193 Nr.3 Objekt
MIL (Jersey) Limited 100.00 150 Utrecht Verwaltungs-GmbH 100.00 (80.67) 50
Trinkaus Immobilien-Fonds
MW Gestion SA 100.00 67 Geschaeltsluehrungs- 6, 50
Promocion en Bienes
Raices, S.A. de C.V. 99.99 (0.99) 3, 18 GmbH 100.00 (80.67)
Trinkaus Immobilien-Fonds
Verwaltungs-GmbH 100.00 (80.67) 6, 50
Prudential Client HSBC Trinkaus Private Equity
GIS Nominee (UK) Limited 100.00 19 Management GmbH 100.00 (80.67) 50
Trinkaus Private Equity
PT Bank HSBC Indonesia 100.00 (98.93) 195 Verwaltungs GmbH 100.00 (80.67) 6, 50
PT HSBC Sekuritas Indonesia 100.00 (85.00) 196 Tropical Nominees Limited 100.00 193
Turnsonic (Nominees)
R/CLIP Corp. 100.00 29 Limited 100.00 19
Real Estate Collateral Vadep Holding AG (in
Management Company 100.00 29 liquidation) 100.00 209
Valeurs Mobilières
Republic Nominees Limited 100.00 22 Elysées 100.00 (99.99) 4, 52
Republic Overseas Capital
Corporation 100.00 117 Wardley Limited 100.00 68
RLUKREF Nominees (UK) Wayloong Credit Limited
One Limited 100.00 19 (in liquidation) 100.00 68
RLUKREF Nominees (UK) Wayloong Finance Limited
Two Limited 100.00 19 (in liquidation) 100.00 68
11,
S.A.P.C. - Ulipro Recouvrement 99.97 41 Wayloong Nominees Limited 100.00 68
Sal Baiyun 100.00 (99.99) 4, 43 Wayhong (Bahamas) Limited 100.00 118
Sal Chang Jiang 100.00 (99.99) 4, 43 Westminster House, LLC n/a 7, 29
Sal Guangzhou 100.00 (99.99) 4, 43 Woodex Limited 100.00 23
Yan Nin Development
Sal Zhu Jiang 100.00 (99.99) 4, 43 Company Limited 100.00 (62.14) 48
Sal Zhu Jiang Jiu 100.00 (99.99) 4, 43 Joint ventures
Sal Zhu Jiang Shi Ba 100.00 (99.99) 4, 43
The undertakings below are joint
ventures and equity accounted.
Sal Zhu Jiang Shi Er 100.00 (99.99) 4, 43
Sal Zhu Jiang Shi Jiu 100.00 (99.99) 4, 43
% of share
class held
Sal Zhu Jiang Shi Liu 100.00 (99.99) 4, 43 by immediate
Sal Zhu Jiang Shi Qi 100.00 (99.99) 4, 43 parent company
(or by the
Group
where this
Sal Zhu Jiang Shi Wu 100.00 (99.99) 4, 43 Joint ventures varies) Footnotes
SAS Bosquet -Audrain 100.00 (94.90) 4, 199 HCM Holdings Limited 50.99 36
SAS Cyatheas Pasteur 100.00 (94.93) 4, 41 House Network Sdn Bhd 25.00 15
1, 4,
SAS Orona 100.00 (94.92) 200
SCI HSBC Assurances 11, HSBC Jintrust Fund Management 12,
Immo 100.00 (99.99) 46 Company Limited 49.00 93
SFM 99.99 4, 42 HSBC Saudi Arabia 49.00 (69.40) 191
SFSS Nominees (Pty)
Limited 100.00 163 ProServe Bermuda Limited 50.00 107
Shandong Rongcheng
HSBC Rural Bank Company Sino AG 24.94 (20.11) 208
12, The London Silver Market 1, 7,
Limited 100.00 201 Fixing Limited n/a 180
Sico Limited 100.00 202 Vaultex UK Limited 50.00 109
1, 11,
SNC Dorique 100.00 (99.99) 203
11,
SNC Kerouan 100.00 (99.99) 43
1, 11,
SNC Les Mercuriales 100.00 (99.99) 43
11,
SNC Les Oliviers D'Antibes 60.00 46
1, 11,
SNC Makala 100.00 (99.99) 43
1, 11,
SNC Nuku-Hiva Bail 100.00 (99.99) 43
1, 4,
SNCB/M6 - 2008 A 100.00 (99.99) 43
1, 4,
SNCB/M6-2007 A 100.00 (99.99) 43
1, 4,
SNCB/M6-2007 B 100.00 (99.99) 43
Societe CCF Finance
Moyen-Orient S.A.L.
(in
liquidation) 99.64 (99.08) 1, 32
Société
Française
et Suisse 100.00 (99.99) 4, 43
Societe Immobiliere
Atlas S.A. (in liquidation) 100.00 151
Somers Dublin DAC 100.00 (99.99) 121
Somers Nominees (Far
East) Limited 100.00 23
Sopingest 100.00 (99.99) 4, 43
South Yorkshire Light
Rail Limited 100.00 19
St Cross Trustees Limited 100.00 19
12,
206
Sun Hung Kai Development
(Lujiazui III) Limited 100.00
Swan National Leasing
(Commercials) Limited 100.00 19
Swan National Limited 100.00 19
Thasoslin 100.00 (99.99) 4, 46
HSBC Holdings plc Annual Report and Accounts 2018 306
Notes on the financial statements
Associates Registered offices
The undertakings below are associates and equity accounted. 22
Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1
3NF
23 37 Front Street, Hamilton, Bermuda, HM 11
% of share class held PO Box 513, Strathvale House, Ground
by Floor, 90 North Church Street, George
immediate Town,
parent company 24 Grand Cayman, Cayman Islands, KY1-1106
(or by the Group 25 HSBC Main Building, 1 Queen's Road
where this varies) Footnotes Central, Hong Kong
First Floor, Xinhua Bookstore Xindong
Associates Road (SE of roundabout), Miyun District,
Bank of Communications Co., Ltd. 19.03 9, 126
Barrowgate Limited 24.64 137
BGF Group PLC 24.48 140
Bud Financial Limited 8.02 3, 9, 17
Canara HSBC Oriental Bank of Commerce Life
148
Insurance Company Limited 26.00
CFAC Payment Scheme Limited 33.33 1, 3, 154
Chemi & Cotex (Rwanda) Limited 99.98 (33.99) 1, 160
Chemi & Cotex Kenya Limited 99.99 (33.99) 1, 166
Chemi and Cotex Industries Limited 100.00 (33.99) 1 , 179
EPS Company (Hong Kong) Limited 40.58 68
GZHS Research Co Ltd 33.00 (20.50) 1, 12, 181
HSBC Mortgage Limited Liability Partnership (in
7, 190
liquidation) n/a
Icon Brickell LLC (in liquidation) n/a 7,192
Jeppe Star Limited 100.00 (33.99) 123
MENA Infrastructure Fund (GP) Ltd 33.33 142
Northstar Trade Finance Inc. 20.08 197
Novo Star Limited 33.99 198
PEF 2005 (A) Limited Partnership n/a 7, 57
PEF 2005 (D) Limited Partnership n/a 7, 57
PEF 2010 (A) Limited Partnership n/a 7, 57
Peregrine Capital (India) Private Limited 33.46 91
Prisma Medios de Pago S.A. 7.06 1, 205
Quantexa Limited 10.51 9, 204
Services Epargne Entreprise 14.35 4, 9, 59
The London Gold Market Fixing Limited n/a 1, 7, 180
The Saudi British Bank 40.00 194
Vizolution Limited 17.95 9, 123
26 Beijing, China
27 95 Washington Street, Buffalo, New York, United States Of America, 14203
28 1209 Orange Street, Wilmington, Delaware, United States Of America, 19801
c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware,
29 United States Of America, 19801
Corporation Service Company, 251 Little Falls Drive, Wilmington,
Delaware, United
30 States Of America, 19808
31 Unsoeldstrasse 2, Munich, Germany, 80538
Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 17
5476 Mar Michael
32 11042040, Beyrouth, Lebanon
33 No 1, Bei Huan East Road Dazu County, Chongqing, China
34 No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County, Chongqing, China
35 No. 3, 5, 7, Haitang Erzhi Road, Changyuan, Rongchang, Chongqing, China, 402460
36 Hill House, 1 Little New Street, London, United Kingdom, EC4A 3TR
37 Bederstrasse 49, Zurich, Switzerland, CH-8002
Rawlinson and Hunter Limited, Woodbourne Hall, PO Box 3162, Road
Town, Tortola,
38 British Virgin Islands, VG1110
39 First & Second Floor, No.3 Nanshan Road, Pulandian, Dalian, Liaoning, China
CT Corporation System, 225 Hillsborough Street, Raleigh, North
Carolina, United
40 States Of America, 27603
41 39, rue de Bassano, Paris, France, 75008
42 103, avenue des Champs-Elysées, Paris, France, 75008
43 64, rue Galilée, Paris, France, 75008
44 MMG Tower, 23 floor, Ave. Paseo del Mar, Urbanizacion Costa
del Este, Panama Walkers Corporate Services Limited, Walker House,
87 Mary Street, George Town,
We Trade Innovation Designated Activity Company 8.52 9, 84
45 Grand Cayman KY1-9005, Cayman Islands
Footnotes for Note 39
1 Management has determined that these undertakings are excluded
from consolidation in the Group accounts as these entities do not
meet the definition of subsidiaries in accordance with IFRS. HSBC's
consolidation policy is described in Note 1.2(a).
2 Directly held by HSBC Holdings plc
Description of shares
3 Preference Shares
4 Actions
5 Redeemable Preference Shares
6 GmbH Anteil
7 This undertaking is a partnership and does not have share capital
8 Liquidating Share Class
9 HSBC Holdings plc exercises control or significant influence
over this undertaking notwithstanding its equity interest
10 Non-Participating Voting Shares
11 Parts
12 Registered Capital Shares
13 Russian Limited Liability Company Shares
14 Stückaktien
Registered offices
Lot 6.05, Level 6, KPMG Tower 8 First Avenue, Bandar Utama
Petaling Jaya Selangor,
15 Darul Ehsan, Malaysia 47800
Level 36 Tower 1 International Towers Sydney, 100 Barangaroo
Avenue, Sydney,
16 New South Wales, Australia, 2000
17 First Floor The Bower, 207 Old Street, London, England, EC1V 9NR
18 Paseo de la Reforma 347, Col. Cuauhtemoc, Mexico, 06500
19 8 Canada Square, London, United Kingdom, E14 5HQ
20 5 Donegal Square South, Belfast, Northern Ireland, BT1 5JP
21 Camden House West, The Parade, Birmingham, United Kingdom, B1 3PY
307 HSBC Holdings plc Annual Report and Accounts 2018
46 15, rue Vernet, Paris, France, 75008
47 No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China
48 83 Des Voeux Road Central, Hong Kong
c/o Maples Corporate Services Limited, Ugland House, PO Box 309,
Grand Cayman,
49 KY1-1104, Cayman Islands
50 Königsallee 21/23, Düsseldorf, Germany, 40212
51 No. 44, Xin Ping Road Central, Encheng, Enping, Guangdong, China, 529400
52 109 avenue des Champs-Elysees, Paris, France, 75008
53 Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 1WW
34/F and 36/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road,,
China (Shanghai)
54 Pilot Free Trade Zone,, Shanghai, China, 200120
55 11-17 Ludwig-Erhard-Str., Hamburg, Germany, 20459
Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town,
Tortola, Tortola,
56 British Virgin Islands
57 Suite 1020, 885 West Georgia Street, Vancouver, BC, V6C 3E8
The Corporation Trust Company of Nevada 311 S. Division Street,
Carson City,
58 Nevada, United States Of America, 89703
59 32 Rue du Champ de Tir, 44300 Nantes
60 HSBC House Esplanade, St. Helier, Jersey, JE4 8UB
61 10th Floor, North Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100
62 13th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100
63 21 Collyer Quay, #13-02 HSBC Building, Singapore, 049320
64 Bouchard 557, Piso 18deg, Cdad. Autónoma de Buenos Aires, Argentina, 1106
65 52/60 M G Road, Fort, Mumbai, India, 400 001
PO Box 513 HSBC House, 68 West Bay Road, George Town, Grand
Cayman, Cayman
66 Islands, KY1-1102
557 Bouchard, Level 22, Ciudad de Buenos Aires, Capital federal,
Argentina,
67 C1106ABG
68 1 Queen's Road Central, Hong Kong
3rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road, Fort,
Mumbai, India,
69 400001
70 Isidora Goyenechea 2800, 23rd floor, Las Condes, Santiago, Chile, 7550647
Registered offices Registered offices
118 Mareva House, 4 George Street,
Nassau, Bahamas
HSBC Building Shanghai ifc, 8 Century
Avenue, Pudong, Shanghai, China, 70 York Street, Toronto, Ontario,
71 200120 119 Canada, M5H 1S9
6th floor, HSBC Centre, 18, Cybercity, Breite Str. 29/31, Düsseldorf,
72 Ebene, Mauritius 120 Germany, 40213
2 Paveletskaya square, building
2, Moscow, Russian Federation, 1 Grand Canal Square, Grand Canal
73 115054 121 Harbour, Dublin 2, D02 P820, Ireland
13F-14F, 333 Keelung Road, Sec.1, HSBC Centre Eighteen, Cybercity,
74 Taipei, 110 122 Ebene, Mauritius
75 25 de Mayo 471, Montevideo, Uruguay, Office Block A, Bay Studios Business
11000 Park, Fabian Way, Swansea, United
Kingdom, SA1 8QB
123
76 The Metropolitan 235 Dong Khoi
Street, District 1, Ho Chi Minh
City, Viet Nam
Esentepe mah. Büyükdere 18th Floor, Tower 1, HSBC Centre,
Caddesi, No.128 Istanbul 34394, 1 Sham Mong Road, Kowloon, Hong
77 Turkey 124 Kong
78 66 Teryan Street, Yerevan, Armenia,
0009
125 Level 32, HSBC Main Building, 1
Queen's Road Central, Hong Kong
SAR, Hong Kong
79 885 West Georgia Street, 3rd Floor, No.188, Yin Cheng Zhong Road China
Vancouver, British Columbia, Canada, (Shanghai) Pilot Free Trade Zone,
V6C 3E9 Shanghai,
306 Corniche El Nil, Maadi, Egypt,
80 11728 126 China
81 116 Archbishop Street, Valletta,
Malta
Level 1, Building No. 8, Gate Village 127 7/F HSBC Centre 3058 Fifth Ave
Dubai International Financial Centre, West, Bonifacio Global City, Taguig
PO Box City, Philippines
1 More London Place, London, United
82 502601, United Arab Emirates 128 Kingdom, SE1 2AF
83 Tour Crystal 1 10EME Etage BD Al HSBC Building Minet El Hosn, Riad
Mohades 20000, Morocco el Solh, Beirut 1107-2080, PO Box
11-1380,
10 Earlsfort Terrace, Dublin, Ireland
84 D02 T380 129 Lebanon
85 HSBC House Esplanade, St. Helier, 300 Delaware Avenue Suite 1400,
Jersey, JE1 1HS Wilmington, Delaware, United States
Of America,
130 19801
86 Al Khuwair Office, PO Box 1727
PC111 CPO Seeb, Muscat, Oman
Craigmuir Chambers, PO Box 71,
Road Town, Tortola, British Virgin
87 Rondo ONZ 1, Warsaw, Poland, 00-124 131 Islands
1800 Tysons Corner, Boulevard Suite 132 Woodbourne Hall, Road Town PO Box
50, Tysons Corner, Virginia, United 916, Tortola, British Virgin Islands
States Of
88 America, 22102 9-11 Floors, NESCO IT Park Building
No. 3 Western Express Highway,
Goregaon
Rua Funchal, n 160, SP Corporate 133 (East), Mumbai, India, 400063
Towers, Torre Norte, 19deg andar,
cj 191A - Parte,
3, Aboul Feda Street, Zamalek,
89 São Paulo, Brazil, 04551-060 134 Cairo, Egypt
66 Wellington Street West, Suite 300 - 885 West Georgia Street,
5300, Toronto, Ontario, Canada, Vancouver, British Columbia, Canada,
90 M5K 1E6 135 V6C 3E9
Rahejas, 4th Floor, Corner of Main 136 16 Boulevard d'Avranches, Luxembourg,
Avenue & V.P. Road, Santacruz (West), L-1160
Mumbai -
49/F, The Lee Gardens, 33 Hysan
91 400054 137 Avenue, Hong Kong
90 North Church Street, Strathvale 138 21 Farncombe Rd, Worthing, Sussex,
House - Ground Floor, PO Box 1109, BN11 2BW
George
92 Town, Grand Cayman, Grand Cayman, c/o Kross Border Trust Services
Cayman Islands, KY1-1102 Limited St. Louis Business Centre,
Cnr Desroches & St
139 Louis Streets, Port Louis, Mauritius
17F, HSBC Building, Shanghai ifc
8 Century Avenue, Pudong, Shanghai, 13 - 15 York Buildings, London,
93 China 140 United Kingdom, WC2N 6JU
Plot No.312-878 Mezzanine Floor,
c/o Rogers Capital, St. Louis Business Bldg. of Sheikh Hamdan Bin Rashid,
Centre, Cnr Desroches & St Louis Dubai Creek, Dubai, United Arab
94 Streets, Port Louis, Mauritius 141 Emirates
95 49 avenue J.F. Kennedy, Luxembourg, Precinct Building 4, Level 3 Dubai
Luxembourg, 1855 International Financial Centre,
Dubai, United Arab
4-17/F, Office Tower 2 TaiKoo Hui, 142 Emirates, PO BOX 506553
No. 381 Tian He Road, Tian He District,
96 Guangzhou, Guangdong, China HSBC Bank Middle East Building
- Level 5, building 5, Emaar, Dubai,
United Arab
Suite 1005, 10th Floor, Wisma Hamzah 143 Emirates, 502601
Kwong Hing No. 1, Leboh Ampang,
Kuala
97 Lumpur, Malaysia, 50100
HSBC, Filinvest One Bldg, Northgate 144 885 West Georgia Street Suite 300,
Cyberzone, Filinvest Corporate Vancouver, British Columbia, Canada,
City, Alabang, V6C 3E9
HSBC House, Level 9, One Queen
Street, Auckland, New Zealand,
98 Muntinlupa City, Philippines 145 1010
HSBC House, Plot No.8, Survey No.64 146 Büyükdere Cad. No.122
(Part), Hightec City Layout Madhapur, D Blok Esentepe Sisli Istanbul,
Turkey
99 Hyderabad, India, 500081
147 21-23 Yorckstraße, Düsseldorf,
Nordrhein-Westfalen, Germany, 40476
100 439, Sri Jayawardenapura Mawatha Unit No. 208, 2nd Floor, Kanchenjunga
Welikada, Rajagiriya, Colombo, Building 18 Barakhamba Road, New
Sri Lanka Delhi -
148 110001, India
101 Smart Village 28th Km Cairo- Alexandria The Corporation Trust Incorporated,
Desert Road Building, Cairo, Egypt 2405 York Road, Suite 201, Lutherville
149 Timonium, Maryland, United States
Of America, 21093
HSBC Chambers, Corner of Jalan 150 HSBC House Esplanade, St. Helier,
Sultan / Jalan Pemancha , Bandar Jersey, JE1 1GT
Seri Begawan, Brunei Darussalam,
BS8811
102
151 Quai des Bergues 9-17, Geneva,
Switzerland, 1201
103 Suite 300, 3381 Steeles Avenue
East, Toronto, Ontario, Canada,
M2H 3S7
Centre Ville 1341 Building - 4th 152 Paseo de la Reforma 359, 6th Floor,
Floor Patriarche Howayek Street Mexico, 06500
(facing Beirut
Büyükdere Cad. No.128
Souks), PO Box Riad El Solh, Lebanon, D Blok Esentepe Sisli Istanbul,
104 9597 153 Turkey
154 6th Floor, 65 Gresham Street, London,
United Kingdom, EC2V 7NQ
First Floor, Building No. 5, Emaar
Square, P.O. Box 502601, Dubai,
Dubai, United
105 Arab Emirates, 00000 155 17, avenue d'Ostende, Monaco, 98000
World Trade Center Montevideo Avenida 156 1441 Brickell Avenue, Miami, Florida,
Luis Alberto de Herrera 1248, Torre United States Of America, 33131
1, Piso
15, Oficina 1502, Montevideo, Uruguay, 2910 Virtual Way, Vancouver, British
106 CP 11300 157 Columbia, Canada, V5M 0B2
c/o MUFG Fund Services (Bermuda) Block 27 A&B, Qianhai Enterprise
Limited, The Belvedere Building, Dream Park No. 63 Qianwan Yi Road,
69 Pitts Bay Shenzhen-
Hong Kong Cooperation Zone, Shenzhen,
107 Road, Pembroke, Bermuda, HM08 158 China, 518052
159 St Nicholas House, 10th Floor Catholic
Mission St Lagos, Nigeria
Level 12, HSBC Building 37, Chilpae-ro,
Jung-gu, Seoul, Korea, Republic
108 Of (South) 160 Kacyiru BP 3094, Kigali, Rwanda
109 All Saints Triangle, Caledonian Unit 1 GF The Commercial Complex,
Road, London, United Kingdom, N19UT Madrigal Avenue, Ayala Alabang
Village,
Immeuble Coeur Défense 110, 161 Muntinlupa City, Philippines, 1770
Esplanade du Général
de Gaulle- La défense 4, Courbevoie,
France, 92400
7/F The Enterprise Centre - Tower
I, 6766 Ayala Avenue corner Paseo
110 De Roxas,
HSBC House Esplanade, St. Helier,
111 Jersey, JE4 8WP 162 Makati City, Philippines
HSBC Building 11-1, Nihonbashi 2 Exchange Square, 85 Maude Street,
3-chome, Chuo-ku, Tokyo, Japan, Sandown, Sandton, South Africa,
112 103-0027 163 2196
80 Mill Street, Qormi, Malta, QRM 13F 333 Keelung Road, Sec.1, Taipei,
113 3101 164 Taiwan, 110
Herrengasse 1-3, Wien, Austria, Palm Grove House PO Box 438, Road
114 1010 165 Town, Tortola, British Virgin Islands
115 Gartenstrasse 26, Zurich, Switzerland R No. 1758/13 Grevella Grove Road,
Kalamu House PO Box 47323-00100,
Nairobi,
24th Fl., 97-99, Sec.2, Tunhwa
S. Rd., Taipei, Taiwan, R.O.C.,
116 Taiwan 166 Kenya
452 Fifth Avenue, New York NY10018, Kapelanka 42A, Krakow, Poland,
117 United States Of America 167 30-347
HSBC Holdings plc Annual Report and Accounts 2018 308
Notes on the financial statements
309 HSBC Holdings plc Annual Report and Accounts 2018
HSBC Holdings plc Annual Report and Accounts 2018 310
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSJFMRTMBIMBIL
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March 06, 2019 12:55 ET (17:55 GMT)
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